Shreyansh Singh, an IIT Kanpur alumnus, has eight years of experience in the finance industry. He has spent 5 years at American Express developing mid to long-term strategies for multiple markets including US, Europe and India. Shreyansh currently leads Growth and Strategy initiatives at Pice.
Reverse Charge Mechanism (RCM) under GST shifts the tax liability from supplier to recipient, ensuring better compliance in unorganised sectors.
Businesses purchasing goods from unregistered suppliers must self-pay GST under Section 9(4) of the CGST Act.
E-commerce operators like Ola and Uber are liable to pay GST on specific services under Section 9(5) of the CGST Act.
Recent amendments introduced self-invoice timelines, RCM on rental agreements, and clarified composite GTA services.
Understanding the latest list of goods and services under RCM helps claim Input Tax Credit (ITC) and avoid GST penalties.
Did you know that as a registered person, if you work with an individual legal consultant, as per RCM applicability under GST, you might have to pay 18% GST on their behalf?
RCM or Reverse Charge Mechanism is a system that shifts the liability of paying tax to the recipient of the Goods and Services and not the supplier. Its primary objective is to widen the scope of levied tax on different unorganised sectors and implement tax exemption on specific classes of suppliers.
If you want to learn about the goods and the list of services under RCM in GST, read on.
List of Goods Notified Under RCM
Section 9 (4) of the CGST Act mandates that if a registered person purchases goods from a non-registered vendor, RCM would apply.
For example, an apartment builder purchases cement from an unregistered supplier. Since the supplier is unable to issue a GST-compliant invoice, the builder becomes liable to pay taxes. Here is the list of goods under RCM in GST with rate:
List of Services Notified Under RCM
Any business can use an e-commerce platform to sell products or offer services. However, under Section 9(5) of the CGST Act, if a service provider offers certain specified services through an e-commerce operator, the responsibility to pay GST shifts to the platform itself under the reverse charge mechanism.
For example, when passengers book rides via platforms like Ola or Uber, it is the e-commerce operator (not the individual driver) who is liable to pay the applicable GST.
The following is the updated list of services under RCM in GST with the rate:
Recent Amendments Made in Reverse Charge Mechanism Under GST
Depending on the nature of the supply and the supplier, reverse charge scenarios are determined. The Central Board of Indirect Taxes and Customs (CBIC) has revised the applicability of RCM rates under GST.
These are as follows:
1. Time Limit on Self-Invoicing
According to the CGST (2017) rule 47A, effective from November 2024, business owners have to issue RCM tax invoices within 30 days of receiving goods and services from unregistered suppliers.
2. RCM Applicability on Rental Agreements
During the 54th meeting of the GST Council held in September 2024, rental agreements between an unregistered and registered individual came under the list of services under RCM in GST.
3. Amendment to Time of Supply
The Finance Bill No.2, 2024, has revised the time of supply to 60 days or an earlier payment date after the issuance of the invoice.
4. Regularisation of Past Tax Liabilities
In the 54th meeting of the GST Council, the tax liability for some specific services got regularised on an 'as is where is' basis.
5. GTA Services Clarification
Loading, unloading, packing and other ancillary services are treated as composite supply since the 54th GST Council meeting.
6. Educational Services Exemption
Government schools' affiliated services are GST-exempt since the notification number. 08/2024 published.
Conclusion
Business owners must check the list of services under RCM in GST while procuring goods or services from an unregistered supplier. That way, they will be eligible for ITC (Input Tax Credit) and avoid penalties. In order to simplify RCM compliance, consider investing in automated solutions.
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FAQs
What is Reverse Charge Mechanism (RCM) under GST?
The Reverse Charge Mechanism (RCM) under GST is a provision where the liability to pay tax shifts from the supplier to the recipient of goods or services. This system was introduced to bring unorganised sectors under the GST framework and ensure proper tax collection. Under RCM, the recipient must generate a self-invoice and pay the applicable GST rate of 18% (in most cases). The paid tax can later be claimed as Input Tax Credit (ITC) if eligible.
What are the goods covered under RCM in GST?
Under Section 9(4) of the CGST Act, RCM applies when a registered dealer purchases goods from an unregistered supplier. Common examples include cement, cashew nuts, bidi wrapper leaves, and tendu leaves purchased from unregistered vendors. In such cases, the buyer must pay the RCM GST rate applicable to those goods. Maintaining proper documentation ensures compliance and helps in availing input tax credit under GST.
Which services are covered under RCM in GST?
A wide range of services fall under Reverse Charge Mechanism in GST, including legal services, goods transport agency (GTA) services, and services provided through e-commerce operators like Ola or Uber. Under Section 9(5) of the CGST Act, platforms must pay GST on behalf of unregistered service providers. The list of services under RCM in GST is regularly updated by CBIC to include more categories for better compliance.
Can Input Tax Credit (ITC) be claimed on RCM payments?
Yes, businesses can claim Input Tax Credit (ITC) on GST paid under the Reverse Charge Mechanism, provided the goods or services are used for business purposes. The ITC can be claimed in the same tax period in which the tax was paid under RCM. However, the recipient must issue a self-invoice and payment voucher to remain compliant. Proper RCM compliance helps reduce overall GST liability and improves tax efficiency.
What are the recent amendments in RCM under GST 2024?
The recent GST Council updates (54th meeting, September 2024) introduced several key amendments in RCM. These include a 30-day limit for self-invoicing, inclusion of rental agreements under RCM, and clarification on composite GTA services. Additionally, certain educational services are now exempt under GST Notification No. 08/2024. Staying updated with the latest RCM changes under GST helps businesses maintain compliance and avoid penalties.
Shreyansh Singh, an IIT Kanpur alumnus, has eight years of experience in the finance industry. He has spent 5 years at American Express developing mid to long-term strategies for multiple markets including US, Europe and India. Shreyansh currently leads Growth and Strategy initiatives at Pice.
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