Reverse Charge Mechanism On Services Under GST Regime

Reverse charge mechanism (RCM) is an important aspect of the Goods and Services Tax (GST) regime in India. It is a mechanism under which the recipient of services is liable to pay tax, instead of the supplier. In simpler terms, RCM shifts the responsibility of paying tax from the supplier to the recipient.

Under the GST regime, RCM is applicable on certain categories of services. This article will discuss the various aspects of RCM on services under GST.

Applicability of RCM on Services

RCM on services is applicable when the supplier of services is a registered person and the recipient of services is an unregistered person. In such cases, the recipient of services is liable to pay tax under RCM.

The following categories of services are covered under RCM:

1. Services provided by a goods transport agency (GTA) to any person registered under GST
2. Services provided by an advocate or a firm of advocates to a business entity
3. Services provided by a person who is located in a non-taxable territory to a person other than a non-taxable online recipient (i.e. B2B transactions)
4. Supply of manpower for any purpose, whether or not temporary, by a person to a business entity
5. Services provided by a director of a company or a body corporate to the said company or the body corporate
6. Services provided by an insurance agent to any person carrying on insurance business
7. Services provided by a recovery agent to a banking company or a financial institution or a non-banking financial company
8. Services provided by a person who supplies goods and/or services through an electronic commerce operator (ECO) to a person other than an ECO
9. Any other service as may be notified by the Government on the recommendations of the GST Council

Tax Rate Under RCM on Services

The tax rate under RCM on services is the same as the tax rate applicable on the respective services if the supplier of services had provided the services. For example, if the tax rate on services provided by a GTA is 5%, then the tax rate under RCM on such services will also be 5%.

Input Tax Credit Under RCM on Services

The recipient of services under RCM is eligible to claim input tax credit (ITC) of the tax paid under RCM, subject to the conditions and restrictions laid down in the GST law.

However, it is important to note that the recipient of services under RCM cannot claim ITC on the tax paid on the goods and/or services received from an unregistered person. In other words, the recipient of services under RCM can claim ITC only on the tax paid on the services received from a registered person.

Registration Requirement Under RCM on Services

As mentioned earlier, RCM on services is applicable when the recipient of services is an unregistered person. However, the unregistered person who is liable to pay tax under RCM is not required to obtain registration under GST if he is availing services on which tax is payable under RCM.

However, if the unregistered person is liable to pay tax under RCM and is also engaged in making supplies on which tax is payable under GST, then he is required to obtain registration under GST.

Conclusion

Reverse charge mechanism on services is an important aspect of the GST regime in India. It helps in ensuring that tax is paid on the services received by the recipient, even if the supplier is not registered under GST. However, it is important for businesses to understand the applicability of RCM on services and comply with the GST law.

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