What Is RCM Under GST? How To Show RCM Sales While GSTR Filing?
The Goods and Services Tax (GST) is the indirect tax levied on the supply of goods and services throughout the country. GST is a destination-based tax, where the supplier is liable to pay the GST. However, in some cases, the recipient takes this liability, which is known as the RCM or Reverse Charge Mechanism. Read on to understand the RCM meaning in GST in detail and see how RCM under GST is levied.
What is RCM under GST?
Under the GST regime, the supplier of the goods and services is liable to pay GST. However, under RCM, the liability is reversed. That is, it is the recipient who must pay the GST due. RCM is applicable only in specific cases which the GST Council has notified. The RCM under GST on a supply can be levied either partially or wholly by the Government.
The RCM in GST is not a new concept and was also prevalent under the previous indirect tax regime. However, it has now been given statutory backing under GST.
Note that RCM does not apply to all supplies. It is only levied on specific supplies as notified by the GST Council. Scroll down to see where RCM is applicable.
RCM Applicability under GST
The following items have been notified to come under the GST reverse charge list:
1. Supply of goods by an unregistered supplier to a registered person (B2B)
When the supply of goods and services is from an unregistered supplier to a registered one, the liability of GST payment falls on the latter, who is the recipient in this case. This also includes the supply of taxable goods and services by an unregistered person to a Government entity. This is done because tracking the payment from a dealer registered under GST is easier. However, reverse charge under GST is only applicable if the value of goods is above Rs. 5,000.
2. Imports
In the case of imports, GST is paid by the importer, who is also the recipient of the goods. The customs authorities collect this GST at the time of importation. This is because it is difficult to track the supplies made by overseas suppliers.
3. Supply of taxable goods and services by an unregistered person to a registered person under the composition scheme
RCM under GST is applicable when the supply of taxable goods and services is made by a person who is not registered under GST to a registered person who has opted for the composition scheme. The liability of paying GST in this case also falls on the registered person, who is the recipient of such taxable goods and services.
4. Goods supplied by an e-commerce aggregator to a supplier
In the case of the goods provided by an e-commerce aggregator to a supplier, RCM will be applicable if the supplier is not registered under GST. The aggregator is also liable to deduct TDS while making payments to the supplier. This ensures that the liability of GST payment is not shifted to the consumer.
This includes online services like booking cabs on platforms like Uber, booking hotels and trip packages, etc. Moreover, RCM under GST also applies while ordering products online. Thus, if you use e-commerce service providers, the GST will be applicable based on the reverse charge mechanism.
5. Goods and services as notified by CBIC
As notified by the GST Council, any other category of goods or services will also come on the reverse charge list under GST. CBIC has issued the details of such goods and services that can be referred to for the same.
Another essential factor that must be considered under RCM is the time of supply. Let us see why that is necessary.
6. Time of supply under RCM
Time of supply refers to the point of time when the goods or services are supplied. The time of supply under the reverse charge mechanism differs from the general time of supply.
This means, under RCM, the time of supply of goods is earlier than the following two:
- The date on which the recipient receives the goods.
- The date immediately after 30 days from the date on which the supplier issued the invoice for the supply of goods.
Let us take an illustration to understand this better.
Suppose X supplied goods to Y under the reverse charge mechanism on 15th May and issued an invoice on the same day. The goods were received by Y on 25th May.
Here:
Date of receipt: 25th May
Date 30 days after issue of invoice: 15th June
The time of supply will be 25th May, which is the earlier of the two dates.
However, in the case of services under RCM in GST, the time of supply is determined as:
- The date on which payment is made.
- The date immediately after 60 days from the date on which the supplier has issued the invoice for the supply of the services.
For example, A supplied services to B on 12th July and issued an invoice for the same. However, the payment for the services provided was made by B to A on 18th July. The time of supply, in this case, will be taken as 18th July.
Let us now understand how to show RCM under GST while filing GSTR.
Also Read: GST Rates in India [2022]: Understanding the Latest GST Rates
How to Show RCM Sales While GSTR Filing?
While filing the returns under GST, you can show the reverse charge mechanism GST by using forms GSTR 1 and GSTR 3B.
In form GSTR 1, you can show the reverse charge sales in table 4B. This is where you are required to show the details of outward supplies made to unregistered persons and composition dealers.
In GSTR 3B, RCM on GST can be shown under table 3.1(d). Here, you will have to show the total turnover for reverse charge sales separately from your regular sales. You can do so by bifurcating RCM sales and regular sales within the table.
RCM is a fundamental concept under GST. It is necessary to understand the same in order to avoid any penalties that may be levied for non-compliance. Moreover, it is also essential to clearly understand RCM while filing your GST returns.
What is Section 9(3) of GST under the CGST Act?
Section 9(3) of the CGST Act lays down the rules for the applicability of the RCM under GST. It mentions the list of the specific categories of goods and services that come under the reverse charge mechanism.
Section 9(3) of the Act also states that the CGST Council may recommend that the Central Government take such action as may be necessary to alter the tax rates on any supply of goods or services.
Registration Rules under RCM
If you are paying tax under the reverse charge mechanism, you must compulsorily register under the GST regime. This is irrespective of the fact whether you cross the given threshold limit for registration under GST or not.
For instance, the threshold limit for registration under GST in your state is Rs. 20 lakh. You have a revenue of Rs. 15 lakh, but you pay GST on a reverse charge basis. You will have to get registered under GST despite being within the threshold limit.
Who Should Pay GST under RCM?
Under the reverse charge mechanism, the recipient of the supply of goods and services is liable to pay GST. The specific situations and categories of goods and services that fall in RCM under GST have been given in Section 9(3) of the CGST Act.
It is very important to note that RCM on GST does not apply to exports. This means that the exporter will be liable to pay GST on the exports made and not the recipient.
Let us now look at how the input tax credit is treated under RCM.
Input Tax Credit (ITC) under RCM
The recipient can avail of Input Tax Credit under RCM on intra-state as well as inter-state supplies. However, certain conditions must be met in order to avail ITC under RCM in GST.
The registered person who pays tax under RCM under the GST regime can avail of the Input Tax Credit only if they have received an invoice or debit note that mentions the GSTIN of the supplier. In addition to this, the registered person must also ensure that the supplier has uploaded the said invoice on the GST common portal. Only then will they be able to avail the input tax credit.
Moreover, it must be kept in mind that input tax credit cannot be availed by the supplier of the goods in the case of RCM under GST. Apart from this, it can only be availed on goods used for the furtherance of business and not for final consumption by the end consumer.
Also Read: What Are IGST, SGST And CGST And What Are The Differences?
Final Word
RCM under GST is an essential concept. Understanding the nuances of this concept under the GST regime can go a long way when it comes to understanding this indirect tax applicable in the country. It is necessary to have a clear understanding and to keep in mind all the guidelines while paying tax under the reverse charge mechanism in order to avoid penalties for non-compliance. Moreover, it is also essential to know how to correctly file your GST returns and show the payment of GST under RCM.
FAQs on RCM under GST
Ans: Under the reverse charge mechanism, the liability of tax is reversed. That is, the recipient of the goods or services must pay GST under the reverse charge mechanism. This is unlike the usual case, where it is the responsibility of the supplier to pay GST.
Ans: The recipient of the goods or services under the reverse charge mechanism must compulsorily get registered under GST. This is irrespective of whether you cross the prescribed threshold limit or not.
Ans: You can GST under the reverse charge mechanism using form GSTR 1 (table 4B) and form GSTR 3B (table 3.1(d)). You are required to put the details regarding the inward as well as outward supply.
Ans: The Input Tax Credit can be availed under the RCM under GST only if the goods or services are used for the furtherance of business. Moreover, ITC can only be claimed by the recipient of the goods or services and not the supplier.
Ans: Under the reverse charge mechanism, the time of supply of goods is calculated on the basis of:
The date on which the recipient receives the goods.
The date is immediately 30 days after the date on which the supplier issued the invoice for the supply of the goods.
Whichever of the two is earlier is taken as the time of supply of goods.
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