All about Reverse Charge Mechanism (RCM) in GST
Taxes are collected by business owners on behalf of the customers, which is then paid to the government. Reverse charge is when the buyer pays the tax directly to the government.
There are two type of reverse charge scenarios provided in law. First is dependent on the nature of supply and/or 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.
Which Cases RCM Is Applicable?
Reverse Charge Mechanism is applicable in case of:
- Purchase from Unregistered Person of Any Goods/Services
If the vendor isn’t registered under GST but the person they’re selling goods/services to is, the reverse charge mechanism will be applicable. The receiver of goods/services will pay GST directly and make a self-invoice for the purchase. In the case of interstate transactions, the buyer will pay IGST, while for intrastate transactions, the buyer will pay SGST and CGST under RCM.
- Purchase from Any Person of Specified Product/Services
As per the CBIC (Central Board of Indirect Taxes and Customs) rules, the Reverse Charge Mechanism under GST applies to a specific set of goods and services. It is a long list which you can easily find online. Some of the items in the list are:
- Cashew nuts
- Bidi wrapper
- Tobacco leaves
- Raw cotton
- Lottery
- Invoicing Under RCM
Whenever you buy from an unregistered provider and the purchase is applicable for the reverse charge under GST, the last option should make a self-receipt. This is on the grounds that the provider can’t give a GST-compliant receipt, thus passing the burden of tax payment to the buyer. One can easily find self-invoice formats online and use them for submission. Whether you are a supplier, receiver, or a business person of any kind, it is important to note these details so that you are prepared for any financial transactions.
Who is liable to pay GST reverse charge?
Under Section 9(4) of the CGST Act, if a registered Individual buys goods and services from a dealer who is unregistered, then then the former has the pay GST on a reverse charge basis.
