What Is Reverse Charge Mechanism under GST?

Reverse Charge Mechanism is not a new concept in the Indian Indirect Tax system. In pre-GST regime, it was also prevalent under the service tax law. Under current GST regime, the provisions of reverse charge have been taken from service tax provisions to some extent. In this article, we will discuss about reverse charge and answer to the intricacies of GST law in relation to reverse charge.

What is Reverse Charge?

Normally, it is the liability of supplier of goods or services to collect the GST from the recipient of goods or services and deposit the same to Government exchequer. But, under reverse charge, the liability to pay GST is on the recipient directly to the Government. The provisions of reverse charge have been brought in case of specified goods and services to avoid tax evasion and to increase tax base. Reverse charge mechanism has been introduced in many cases like transport services, cab services, import etc. Section-9(3) & 9(4) of CGST Act or Section- 5(3) or 5(4) of IGST Act specifies the goods or services on supply of which GST is payable under reverse charge.

What is section- 9(3) of CGST Act?

Section-9(3) of CGST Act/ 5(3) of IGST Act: -

Under this section, those goods and services are notified on which the recipient of goods or services is liable to pay tax under reverse charge.
In this section, it does not matter whether the supplier is registered or not under GST.
The liability to pay GST will always be upon the recipient of goods or services on the goods and services specified u/s 9(3) and corresponding section 5(3) of IGST Act.

What are the goods or services liable for RCM under GST?

List of goods under RCM in GST

Sr. No.	Description of supply of Goods	Supplier of Goods	Recipient of Goods
1	Cashew nuts (not shelled or peeled)	Agriculturist	Any registered person
2	Bidi Wrapper Leaves (tendu), Tobacco Leaves	Agriculturist	Any registered person
3	Silk Yarn	Manufacturer of silk yarn from raw silk or silk worm cocoons	Any registered person
4	Lottery	State Government, Union Territory or local authority	Lottery distributor or selling agent
5	Raw Cotton	Agriculturist	Any registered person
6	Used vehicles, seized and confiscated goods, old and used goods, waste and scrap	Central Government, State Government, Union Territory or local authority	Any registered person
7	Purchase of priority sector lending certificate	Registered person	Any registered person

List of services under RCM in GST

Sr. No.	Description of supply of services	Supplier of services	Recipient of services	GST Rates
1	Goods Transport Agency (GTA) services by road	Goods Transport Agency	Any factory, society, cooperative society, registered person under GST, body corporate, partnership firm including AOP, casual taxable person located in the taxable territory	5%
Note: Notification No. 22/2017- CT (Rate) w.e.f. 22.08.2017 - If GTA opts to charge GST in his invoice and pays GST @ 12%, the recipient is not liable to pay GST under RCM. Notification No. 32/2017- CT (Rate) dated 13.10.2017- Services provided by GTA *to an unregistered person* (other than factory, society, co-operative society, body corporate, partnership firm, registered casual taxable person) shall be exempt from GST. If a department of central/ state government/ union territory or local authority etc. (who has obtained registration under GST as TDS deductor) receives services of transportation by road from GTA, no GST is payable thereon.
2	Legal services provided directly or indirectly, by advocate including a senior advocate or firm of advocates	An individual advocate including a senior advocate or firm of advocates	Any business entity located in the taxable territory shall be liable under reverse charge @ 18%.	18%
Note: - Meaning of Legal services: - ‘Legal services’ means any service provided in relation to advice, consultancy or assistance in any manner and includes representational services before any court, tribunal or authority. Notification No.12/2017- CT (Rate) dated 28-06-2017: - Legal services provided to a person other than business entity is fully exempted from GST. Further, Legal services provided to a business entity with turnover up to Rs. 20 Lakhs (Rs. 10 Lakhs in special category states) in preceding financial years shall also be exempted. Services provided by senior advocate to any other advocate or firm of advocates are not exempt and are liable for GST under forward charge mechanism. Firm of Advocates includes LLP registered under LLP Act, 2008.
3	Services provided by an arbitral tribunal to a business entity	An Arbitral Tribunal	Any business entity located in the taxable territory.	18%
Notification No.12/2017- CT (Rate) dated 28-06-2017: - Services provided by arbitral tribunal to a person other than business entity or to a business entity with aggregate turnover of up to Rs. 20 Lakhs (Rs. 10 Lakhs in special category states), shall be exempt from GST.
4	Sponsorship services provided to any Body corporate or partnership firm	Any person	Any Body Corporate or partnership firm located in taxable territory.	18%
5	Services supplied by the Central Government, State Government, Union Territory or local authority to a business entity excluding: Renting of immovable property Services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government Services in relation to an aircraft or vessel, inside or outside the precincts of a port or airport Transport of goods or passengers	Central or State Government, Union Territory, Local Authority	Any Business Entity located in the taxable territory.	18%
5A	Renting of immovable property services by Central Government, State Government, Union Territory or Local Authority to a person registered under GST	Central or State Government, Union Territory, Local Authority	Any person registered under GST	18%
5B	Transfer of development rights or Floor Space Index (FSI) (including additional FSI) for construction of a project	Any Person	Promoter	18%
Note: Notification No. 6/2019- CT (Rate): - GST on development rights/ FSI to be paid by promoter w.e.f. 01-04-2019 under reverse charge @ 18%.
5C	Long Term Lease (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 by a promoter.	Any Person	Promoter	18%
Note: Notification No. 6/2019- CT (Rate): - GST on long term lease by any person for construction project by a promoter shall be payable under reverse charge w.e.f. 01-04-2019 @18%.
6	Services supplied by a director of a company or a body corporate to the said company or body corporate	A director	The company or body corporate located in the taxable territory.	18%
7	Services by an insurance agent to any person carrying on insurance business	Insurance Agent	Any person carrying on insurance business	18%
8	Recovery Agent Services to a bank or financial institution or NBFC	Recovery Agent	Bank or Financial Institution or NBFC	18%
9	Copyright services by a music composer, photographer, artist or like relating to original dramatic, musical or artistic works to a music company, producer or the like	Music Composer, Photographer, artist or the like	Music Company, producer or the like located in the taxable territory	12%
9A	Supply of services by an author by way of transfer or permitting the use or enjoyment of a copyright covered under the Copyright Act, 1957 relating to original literary works to a publisher	Author of original literary work	Publisher located in the taxable territory.	12%
Note: - If the author is registered under CGST Act, he can exercise the option to pay tax under forward charge. For this, he will have to file a declaration in form at Annexure-I that he exercises the option to pay tax under forward charge and that he shall not withdraw the option within a period of 1 year from the date of exercising such option. Further, the author will have to make declaration in the invoice issued by him in Form Inv-1 to the publisher. This entry has been inserted w.e.f. 01-10-2019. This means that till 01-10-2019, the above service was only covered under reverse charge mechanism.
10	Supply of services by the members of Overseeing committee to RBI	Members of Overseeing Committee constituted by RBI	Reserve Bank of India	18%
11	Supply of services by individual Direct Selling Agents (DSA) other than a body corporate, partnership or LLP to a bank or NBFC	Individual DSA other than a body corporate, partnership or LLP to a bank or NBFC	Banking company or NBFC located in taxable territory	18% Inserted by Notification No. 15/2018- CT (Rate) dated 26.07.2018
12	Services provided by a business facilitator to a banking company	Business Facilitator	Banking company located in taxable territory	18% Inserted by Notification No. 29/2018- CT (Rate) dated 31.12.2018
13	Services provided by an agent of business correspondent to business correspondent	An agent of business correspondent	Business Correspondent located in taxable territory	18% Inserted by Notification No. 29/2018- CT (Rate) dated 31.12.2018
14	Security services (by way of supply of security personnel)	Any person other than body corporate	Registered Person	18% Inserted by Notification No. 29/2018- CT (Rate) dated 31.12.2018
Note: Nothing contained in this entry shall apply to: - A department or establishment of Central/ State Government or Union Territory or local authority or Government agencies, who have taken registration as ‘Tax Deductor’ u/s 51 of CGST Act and not for supply of goods or services and Registered person registered under Composition Scheme u/s 10 of CGST Act.
15	Services provided by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient	Any person other than body corporate, who supplies the service to a body corporate and does not issue an invoice charging CGST @ 6% plus SGST to the service recipient	Any body corporate located in the taxable territory	5%
Note: The above entry has been inserted by Notification No. 22/2019- CT (Rate) dated 30.09.2019. It has been further amended Notification No. 29/2019- CT (Rate) dated 31.12.2019 .
16	Services of lending of securities under Securities Lending Scheme, 1997 of SEBI	Lender i.e. a person who deposits the securities registered in his name or in the name of any other person duly authorised on his behalf with an approved intermediary for the purpose of lending under the scheme of SEBI	Borrower i.e. a person who borrows the securities under the scheme through an approved intermediary of SEBI	18% Inserted by Notification No. 22/2019- CT (Rate) dated 30.09.2019

All the goods and services notified for RCM purposes have also been notified under IGST Act. Further, the following additional services are also notified under IGST Act for levy of IGST under reverse charge: -

Nature of supply of services	Supplier of services	Recipient of services
Services supplied by a person located in non-taxable territory by way of transportation of goods by vessel from a place outside India up to the customs station of clearance in India	A person located in the non-taxable territory	Importer located in the taxable territory
Any service supplied by any person located in a non-taxable territory to any person other than non-taxable online recipient	Any person located in a non-taxable territory	Any person located in the taxable territory other than non-taxable online recipient

What is section-9(4) of CGST Act?

According to this section, in case of receipt of goods or services by a registered person from an unregistered supplier, GST will be payable by the recipient on the specified goods or services.
It should be noted that this section is applicable only where specified goods or services are procured from an unregistered supplier.
Till today, the Central Government has specified only certain transactions related to real estate projects.

In which cases RCM is applicable under GST?

Reverse Charge Mechanism is applicable in the following cases: -

In case of goods or services notified under section 9(3) of CGST Act, the recipient of goods or services shall be liable to pay GST under RCM irrespective of the fact whether the supplier is registered or not.
In case of goods or services notified under section 9(4) of CGST Act, the recipient of goods or services shall be liable to pay GST under RCM if such purchase is made from unregistered supplier.

When is e-commerce operator liable for payment of GST?

If an e-commerce operator (aggregator) supplies services, then reverse charge is applicable. He will be liable to pay GST under RCM. For example, UrbanClap takes services from beauticians, plumbers, electricians etc. to be provided such services to their customers. In such cases, UrbanClap will be liable to pay GST instead of such beauticians, plumbers, electricians etc.
If the e-commerce operator does not have a physical presence in the taxable territory, then its representative will be liable to pay tax. If there is no representative, the operator will have to appoint a representative.

When is RCM applicable in case of purchase from unregistered suppliers?

Read our article on the related topic:- RCM on purchases from unregistered suppliers under GST

What is ‘Time of Supply’ in Reverse Charge under GST?

‘Time of Supply’ is the point of time at which the supply of goods or services is liable for tax under GST laws.

Time of Supply in case of Goods

Time of Supply in case of Services

Earliest of the following: -

Date of receipt of the goods or
Date of payment as per books of accounts or the date of debit in the bank account, whichever is earlier
Date immediately following 30 days from the date of issue of invoice or similar document.

Earliest of the following: -

Date of payment as per books of accounts or the dare of debit in the bank account, whichever is earlier
Date immediately following 60 days from the date of issue of invoice or similar document

How an invoice is made for RCM supplies?

If purchase liable for reverse charge is made from a registered supplier: - In this case, the registered supplier will issue invoice but he is not liable to pay tax. Hence, he will mention in the invoice that the tax is payable under RCM. Similarly, this is also required to be mentioned in receipt voucher as well as refund voucher.
If purchase liable for reverse charge is made from an unregistered supplier: - the recipient is liable to issue an invoice himself. It is also called as ‘Self-Invoicing’. He can prepare a single consolidate monthly invoice.

Can tax payable under RCM be paid from electronic credit ledger?

No, tax which is payable under RCM cannot be paid from electronic credit ledger. Tax in this case has to be deposited only through electronic cash ledger.

Can we take input tax credit for tax paid under RCM in the same month?

Yes, you can claim the input tax credit for tax paid under RCM in the same month, when you pay the GST under RCM.

Is GST payable on advances received for supplies liable for GST under reverse charge mechanism?

Yes, advances paid for reverse charge supplies are also liable for GST. The person who makes advance payment will have to pay tax on reverse charge basis.

How to show RCM amount in the GST Return?

Supplies received and liable for tax under RCM has to be shown as follows:-

In GSTR-3B, it is shown at two places: -

In table 3.1.d: - Under Inward Supplies (liable to reverse charge)

Secondly, it is shown in table no. 4.3 as ITC.

In GSTR-1: - It is shown in Table-4B.

Are provisions of RCM u/s 9(4) applicable on supplies made to TDS deductors u/s 51 of CGST Act, 2017?

The provisions of section 9(4) of CGST Act will not be applicable to supplies made to a TDS deductor in terms of notification no. 9/2017- CT (Rate) dated 28.06.2017. Therefore, the Government entities who are TDS deductors u/s 51 of the CGST Act need not pay GST under RCM on supplies received from unregistered suppliers.

Is registration compulsory if we are receiving supplies liable for tax under RCM?

A person who is required to pay tax under reverse charge has to compulsorily register under GST and the threshold limit of turnover of Rs. 20 Lakhs/ 40 Lakhs (Rs. 10 Lakhs for special category states) is not applicable to them.

I am engaged in supply of exempted or non-taxable goods. I also receive goods or services which are liable for GST under RCM. Do I need to register under GST?

Section 23 of CGST Act provides for exemption from registration to those who are exclusively engaged in the supply of goods or services which are either non-taxable or wholly exempted. Thus, if you are not required to register under GST then you are not required to pay GST under reverse charge.

I am supplier of Goods Transport services by road. In my case, GST is always payable by my customers under reverse charge. Do I need to register under GST?

No, you need not register under GST. As per Notification No. 5/2017 – CT dated 19-06-2017, a person who is making supplies of goods or services where the total tax is payable by recipient of goods or services are exempt from registration under GST.

Can an Input Service Distributor (ISD) make purchases liable to reverse charge?

An ISD cannot make purchases liable to reverse charge under GST. If he wants to do so, he will have to register as normal taxpayer to claim ITC.

Quick Links

Reverse Charge Mechanism under GST

Reverse Charge Mechanism under GST