Under any tax regime, a seller is liable to pay tax to the government. In GST, the supplier of goods or services collects GST from the buyer and pays it to the GST department while filing the GST Return. Under RCM the buyer is liable to pay GST to the government. It is applicable on the sale of notified goods and services or specified situations.
Normal Mechanism
- The seller collects payment from the buyer for the sale of goods or services
- Seller collects tax (GST) from the buyer for the sale of goods or services
- Seller pays tax (GST) to the government while filing his GST Return on the GST Portal
Reverse Charge Mechanism (RCM)
- The seller collects payment from the buyer for the sale of goods or services
- Seller does not collect tax (GST) from the buyer for the sale of goods or services
- Buyer pays tax (GST) to the government while filing his GST Return on the GST Portal
Applicability of Reverse Charge Mechanism (RCM) in GST
A. Purchase from Unregistered Dealer
If a person buys goods or services from an unregistered dealer and the value exceeds Rs.5000 in a day, such a buyer must pay tax under reverse charge mechanism in GSTR-3B.
The above provision is not applicable in case of government entities who are registered as TDS Deductors under GST.
B. Purchase of Notified Goods and Services
CBEC has notified a list of goods and services on which RCM is applicable. As a result, if a person buys goods or services mentioned in this notified list, he/she is liable to pay GST in GSTR-3B under RCM.
Notified List of Goods in Reverse Charge Mechanism (RCM) GST
| Description | Supplier | Recipient |
| Cashew nuts not shelled or peeled | Agriculturist | Any registered person |
| Bidi wrapper leaves (tendu) | Agriculturist | Any registered person |
| Tobacco leaves | Agriculturist | Any registered person |
| Silk yarn | Manufacturer of silk yarn from raw silk or silk worm cocoons | Any registered person |
| Raw cotton | Agriculturist | Any registered person |
| Supply of lottery | State Government / Union Territory / Local Authority | Lottery distributor or selling agent |
| Used vehicles / seized and confiscated goods / old and used goods / waste and scrap | Central Government / State Government / Union Territory / Local Authority | Any registered person |
FAQs
If a person is required to pay GST as per the provisions of the reverse charge mechanism, it is compulsory to take registration irrespective of the turnover. The threshold limit of Rs.20 lacs is not applicable in these cases.
If the buyer has paid GST under reverse charge, he can claim the input tax credit of the tax paid if he/she has satisfied all conditions to claim ITC. The Input Tax Credit can be claimed by the buyer and not seller.
Any person who makes inter-state sale of taxable goods must take compulsory registration under GST. Therefore, the dealer in Karnataka should opt for GST Registration since he/she is selling taxable goods outside his/her state.
Hey @HarshitShah
Goods/sectors that are out of the GST ambit include alcohol and specified petroleum products like petroleum crude, high-speed diesel, motor spirit, aviation turbine fuel and natural gas. Alcohol for human consumption continues to attract state excise duty and VAT. Tobacco and tobacco-based products attract both excise duty and GST. Taxes such as stamp duty, toll tax, road tax, electricity duty etc. are not part of GST.
Hope this helps!
Hey @HarishMehta
Customs duty and cess as applicable along with IGST+ GST compensation cess. IGST and GST compensation cess shall be paid after adding all customs duty and customs cess to the value of imports.
Hope this helps!