Easy way to understand Reverse Charge Mechanism and its Updated List

Before going to Reverse Charge Mechanism (RCM) you should know what is Forward Charge Mechanism (FCM).

Forward charge Mechanism (FCM)

FCM or direct charge is that mechanism where the supplier of goods/services is liable to pay tax. For instance,

if a chartered accountant provides service to his client, the GST will be payable by the chartered accountant,
or if the Registered Dealer of taxable supplies sells goods and collect tax, then he is liable to deposit the taxes to Government.

On its contrary,

Reverse Charge Mechanism

RCM is opposite of it. That means in particular sense, in the case of RCM the buyer or the other party becomes liable to pay GST to the Government. For Instance,

if an advocate provides service to his client, then client will pay GST to Government, if registered,

or if the Unregistered Dealer of taxable supplies sells goods to Registered Dealer then the registered dealer is liable to deposit the taxes to Government. (not applicable at present )

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There are two type of Reverse Charge Mechanism scenarios provided in law:

First is dependent on the nature of supply and nature of supplier. This scenario is covered by section 9 (3) of the CGST/SGST (UTGST) Act and section 5 (3) of the IGST Act. In addition to this, it Includes Supply of services through an E-Commerce operator [u/s 9(5)].
Second scenario is where taxable supplies by any unregistered person to a registered person and it is covered section 9 (4) of the CGST/SGST (UTGST) Act and section 5 (4) of the IGST Act. In other words, an organized business (registered) takes over the burden of tax compliance for an unorganized business (unregistered).

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List in which GST’s reverse charge applies:

a) Services

Sl. No.	Name of Services	Supplier of service	Recipient of Service
(1)	(2)	(3)	(4)
1	Supply of Services by a Goods Transport Agency (GTA) who is not registered as FCM.	Goods Transport Agency (GTA)	(a) Any factory (b) Any society (c) Any co-operative society (d) Any person registered under the GST (e) Anybody corporate (Company) (f) Partnership firm (g) Casual taxable person; located in the taxable territory.
2	Advocate Services	Any advocate or Advocate firms.	Any business entity.
3	Services by an arbitral tribunal	An arbitral tribunal	Any business entity
4	Sponsorship Services	Any person	Anybody corporate (Company) or partnership firm
5	Services supplied by the Government except- renting of immovable property, services by the Department of Posts by way of 1. speed post, 2. express parcel post, 3. life insurance, 4.agency services provided services in relation to aircraft or a vessel, transport of goods or passengers.	Central Government, State Government, Union territory or local authority	Any business entity located in the taxable territory
6	Services by any person by way of transfer of development rights or Floor Space Index (FSI) (including additional FSI) for construction of a project	Any person	Promoter
7	Long term lease of land (30 years or more) by any person against consideration in the form of upfront amount (called as premium, salami, cost, price, development charges or by any other name) and/or periodic rent for construction of a project	Any person	Promoter
8	Services by director of a company	Director	Company (body corporate)
9	Insurance Agent services	An Insurance agent	Insurance company
10	Recovery Agent services	Recovery agent	Bank or a financial institution or a non-banking financial company
11	Copyright services by an author, music composer, photographer, artist or the like relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the like.	Author or music composer, photographer, artist, or the like	Publisher, Music Company, producer or the like.
12	Overseeing Committee Services	Members of Overseeing Committee constituted by the Reserve Bank of India	Reserve Bank of India.
13	Services supplied by individual Direct Selling Agents (DSAs)	Individual Direct Selling Agents (DSAs)	Bank or a non-banking financial company
14	Business facilitator (BF) services	Business facilitator (BF)	Bank
15	Business correspondent (BC) services (Business Correspondents are retail agents engaged by banks for providing banking services at locations other than a bank branch/ATM.)	A Business correspondent (BC) agent	Business correspondent
16	Security services (Government Department/ Establishment/Agency who have taken registration under GST only for TDS purpose and those paying tax under Section 10 (Composition Scheme) are not required to pay GST on RCM basis.)	Any person other than a body corporate	A registered person,
17	Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient.	Person located in a non-taxable territory	Any person located in the taxable territory other than non-taxable online recipient.

Important Difference between Composition and Regular scheme

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b) Goods

Sl. No.	Name of Goods	Supplier of goods	Recipient of goods
(1)	(2)	(3)	(4)
1	Cashew nuts (not shelled/peeled), Bidi wrapper leaves, Tobacco leaves,	Agriculturist	Registered person
2	Supply of lottery	Government	Registered person
3	Silk yarns	Manufacturer using raw silk, silk worm cocoons	Registered person
4	used vehicles, seized and confiscated goods, old and used goods, waste and scraps,	Unregistered Person	Dealer in such goods

RCM provisions apply to the persons located in the taxable territory. An inter-state supplier of goods is compulsorily required to get GST registration. Therefore RCM provision for the interstate supply of goods is not possible.

However, an inter-state supplier of services is not compulsorily required to get GST registration. Therefore RCM provision for the interstate supply of service is possible.

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