Reverse Charge Mechanism (RCM) Under GST — Complete Guide for Businesses

Under the Reverse Charge Mechanism (RCM) in GST, the liability to pay GST is shifted from the supplier to the recipient (buyer) of goods or services. In normal GST, the supplier collects GST from the buyer and pays it to the government — in RCM, the buyer pays GST directly to the government. Here is the complete guide to RCM compliance.

Two Types of RCM Under GST

1. Mandatory RCM on Specified Goods/Services — Section 9(3):

The government has specified certain goods and services where RCM always applies — regardless of whether the supplier is registered or not:

• Legal services: Advocate/firm of advocates providing legal services to a business entity — RCM at 18% on the recipient business
• GTA (Goods Transport Agency): Transportation services to specified recipients — RCM at 5% (no ITC) or 12% (with ITC) depending on GTA's option
• Director's remuneration: Services by a director (not as employee) to a company — 18% RCM
• Sponsorship services: By any person to a body corporate — 18% RCM
• Government renting: Services by government to business entities — RCM applies
• Import of services: Services received from outside India by any registered person — IGST under RCM

2. Purchases from Unregistered Suppliers — Section 9(4):

If a registered person purchases goods/services from an unregistered supplier and the category of goods/services is specifically notified, the registered buyer must pay GST under RCM. Currently applicable to: purchase of raw cotton from farmers by a ginning/spinning mill; specific other items as notified. (The original broad Section 9(4) applicability for all unregistered purchases was suspended — check current notifications.)

ITC on RCM Payments

• RCM GST paid by the recipient is eligible for ITC in the same month (once paid)
• Exception: ITC is NOT available on RCM payments for certain blocked supplies (like GTA at 5% without ITC, and certain other notified items)
• ITC on RCM is available only after payment of GST — not on accrual basis

RCM Compliance Requirements

• Registered buyers must self-invoice for RCM transactions (where supplier is unregistered or where notified services are received)
• RCM GST is paid in cash (cannot use ITC to pay RCM liability) — through the electronic cash ledger
• Report RCM in Table 3.1(d) of GSTR-3B; inward RCM supplies in Table 4(A)(3) of GSTR-3B
• Report in Table 4B of GSTR-1 for outward supplies attracting RCM (if you are the supplier of notified services)

Conclusion

RCM compliance requires businesses to identify notified transactions, self-invoice, pay GST in cash and correctly report in monthly returns. SPOTON provides complete GST compliance services including RCM identification and filing for businesses across Kerala. Contact us for expert GST advisory services.