When Does Reverse Charge Mechanism (RCM) Apply?

RCM applies in the following cases:

1. Unregistered Supplier

If the supplier of goods or services is unregistered under GST, the liability to pay tax shifts to the recipient. The recipient must pay GST on such purchases under RCM. This provision ensures that even if the supplier is not registered, the government can still collect taxes on the transaction.

For example:

  • If a business buys goods from a supplier who is not registered under GST, the buyer must pay the GST under RCM.

2. Specified Goods and Services

Certain goods and services specified by the government are subject to RCM, irrespective of whether the supplier is registered or not. For instance, the government may decide to make certain services like legal services, security services, or transportation services subject to reverse charge.

Examples include:

  • Legal services provided by an advocate or law firm to a business entity.
  • Services provided by a goods transport agency (GTA) to a registered recipient.
  • Services provided by an individual or HUF (Hindu Undivided Family) to a business entity.

3. Specific Categories of Recipients

RCM can also apply to specific categories of recipients, such as:

  • Business entities or corporates receiving services from unregistered individuals or businesses.
  • Government bodies receiving certain services from specific suppliers.

In some cases, the recipient could be mandated by the government to pay GST under RCM.

4. Import of Goods and Services

For imported goods or services, RCM applies automatically. The recipient (importer) is required to pay GST on the imported goods or services.

For instance:

  • When a business imports goods or services, it has to pay the integrated GST (IGST) under RCM and claim ITC on the same.

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