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 )
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).
List in which GST’s reverse charge applies:
|Sl. No.||Name of Services||Supplier
|Recipient of Service|
|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-
1. speed post,
2. express parcel post,
3. life insurance,
4.agency services provided
|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
(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.|
|Sl. No.||Name of Goods||Supplier
|Recipient of goods|
|2||Supply of lottery||Government||Registered person|
|3||Silk yarns||Manufacturer using raw silk, silk worm cocoons||Registered person|
||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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