Applicability of Reverse Charge Mechanism

In Reverse Charge Mechanism (RCM) under GST, the recipient who has purchased the goods or/and services is required to pay GST instead of the supplier. 

Reverse Charge Mechanism (RCM) under GST? 

Generally, the supplier who supplies goods or/and renders services is liable to pay tax under GST. However, under the reverse charge mechanism, the recipient who received goods or/and rendered services needs to pay the tax. 

Applicability of Reverse Charge Mechanism (RCM) 

Reverse Charge will apply in case of the following scenarios 

1. Goods Supplied or/and Services Rendered By an Unregistered Supplier to Registered Taxable Person 

A reverse charge mechanism will apply to all those supplies when an unregistered supplier provides goods or/and services to a registered taxable person. In simple words, the recipient of such goods or/and services need to pay IGST on inter-state and CGST + SGST/UTGST on intra-state supply (when the value of supply exceeds INR 5000 in a day). 

2. E-Commerce Operator Services 

All the services provided by the e-com operators come under the reverse charge mechanism (RCM). In other words, e-com operators will be liable to pay GST under RCM. Let us understand this with an example, if a service provider provides service through an e-commerce operator like JOBOY or Urban Company, then such e-com operator will collect and pay GST. 

3. Supply of Notified goods 

Here is the list of goods that attracts GST under reverse charge mechanism (RCM): 

• Cashew nuts (not shelled / peeled); 
• Bidi wrapper leaves; 
• Tobacco leaves; 
• Lottery tickets; 
• Silk or yarn 

4. Supply of Notified Services 

If any supplier renders the following notified services, then in such case the recipient will be liable to pay GST under reverse charge mechanism (RCM). 

• Goods Transport Agency (GTA) services rendered to any registered taxable person, partnership firm, body corporate, co-operative society, or casual taxable person; 
• Advocate services rendered to any business entity located in the taxable territory; 
• Arbitral tribunal services rendered to any business entity; 
• Any Sponsorship services rendered to a body corporate or partnership firm. 
• Central/State government or local authority services provided to a business entity (not including renting of immovable property, postal services, aircraft or vessel services, goods or passengers transport); 
• Any service rendered by an insurance agent to any Insurance Business; 
• Recovery agent services rendered to any banking/financial institution or NBFC; 
• Transfer of copyright or permission given by the artist to use original literary, dramatic, musical, or artistic works to publisher, company, producer, or similar.