What is RCM?
Reverse Charge Mechanism (RCM) is one of the most important concepts under India’s GST law. It shifts the responsibility of paying GST from the supplier to the recipient.
Under a normal GST transaction, the supplier collects GST from the buyer and remits it to the government.
Under Reverse Charge, the recipient (buyer) pays the GST directly to the government.
In short:
- FORWARD CHARGE: Supplier pays GST.
- REVERSE CHARGE: Recipient pays GST.
Why was RCM introduced?
RCM was introduced to bring unorganized sectors under tax control (e.g. real estate construction) and ultimately reducing tax leakage.
Legal basis for RCM
Section 9(3), 9(4) and 9(5) of CGST Act deal with RCM. Section 9(3) read with Notification no. 13/2017(CT) deal with RCM on services. Section 9(3) read with Notification no. 4/2017(CT) deal with RCM on goods.
Section 9(4) of CGST Act deal with RCM applicable in case of construction services.
Section 9(5) deal with cases in which GST has to be paid by E-commerce operator.
Section 5 of IGST Act deal with corresponding provisions in the case of IGST.