The reverse charge mechanism (RCM) under the Indian Goods and Services Tax (GST) refers to a provision in the GST law where the recipient of goods or services is responsible for paying the GST, instead of the supplier. In such cases, the recipient is considered as a taxable person under the GST law and is liable to pay the tax to the government.
The RCM under GST is applicable in certain specified circumstances, where the supplier of goods or services is either an unregistered person or is located outside the territorial jurisdiction of India. In such cases, the recipient of the goods or services is liable to pay the GST on the value of the supply, instead of the supplier.
The RCM under GST is applicable to both inter-state and intra-state supplies of goods or services. The RCM is applicable to various sectors, including construction services, works contract services, and services provided by an individual to a business entity, among others.
The RCM under GST is an important provision that helps in ensuring compliance of GST laws by unregistered persons and persons located outside India. It also helps in preventing tax evasion by unregistered persons and helps in expanding the tax base by including the recipient of goods or services in the GST chain.
The RCM under GST is governed by the provisions of section 9(3) of the Central Goods and Services Tax (CGST) Act and the corresponding provisions in the respective State Goods and Services Tax (SGST) Acts. The RCM provisions are applicable to all taxable persons who are registered under GST and are engaged in the supply of goods or services.
The RCM provisions under GST are applicable in the following circumstances:
- Supply of services by an unregistered person to a registered person: In this case, the recipient of services is liable to pay the GST on the value of the services received, instead of the unregistered service provider.
- Supply of goods or services by an unregistered person to a special economic zone (SEZ) developer or unit: In this case, the SEZ developer or unit is liable to pay the GST on the value of the goods or services received, instead of the unregistered supplier.
- Supply of services by a person located outside India to a person in India: In this case, the recipient of services in India is liable to pay the GST on the value of the services received, instead of the service provider located outside India.
- Supply of goods or services to a job worker: In this case, the recipient of goods or services from the job worker is liable to pay the GST on the value of the supply, instead of the job worker.
- Supply of goods or services by an intermediary: In this case, the recipient of goods or services from the intermediary is liable to pay the GST on the value of the supply, instead of the intermediary.
The RCM provisions under GST also specify the time of supply of goods or services, where the time of supply is determined based on the date of payment or the date of receipt of the goods or services, whichever is earlier.
The RCM provisions under GST also specify the manner of paying the GST, where the recipient of goods or services is required to pay the GST through the electronic cash ledger and is also required to discharge the input tax credit in the same manner.
The RCM provisions under GST also specify the manner of availing input tax credit, where the recipient of goods or services is eligible to avail the input tax credit on the GST paid under RCM, subject to the provisions of the GST law.
In conclusion, the RCM under Indian GST is a crucial provision that helps in ensuring compliance of GST laws.