What are the compliances required under Reverse Charge Mechanism of GST?

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By Sakshi Shah on February 18, 2019

Reverse Charge Mechanism i.e. RCM is the mechanism under which the buyer of goods or services is liable to pay GST to the government instead of the seller. It is applicable on sale of notified goods and services or specified situations.

What is Reverse Charge Mechanism (RCM) under GST?

A person who is liable to pay tax under RCM must fulfill the following compliances:

  1. Compulsory Registration – The person liable to pay tax under RCM should compulsorily register under GST irrespective of the turnover. The threshold exemption of Rs.20 lacs is not applicable
  2. Input Tax Credit – The buyer can claim the input tax credit for which he has paid tax under RCM if all the conditions to claim ITC have been fulfilled. In this case, the buyer can claim ITC but not the seller
  3. Payment of Tax – To pay the tax under RCM, the taxpayer can use balance from e-cash ledger only. They cannot use balance in the e-credit ledger.
  4. Tax Invoice – The tax invoice issued by the seller to the buyer must specifically mention that the tax has been paid by the buyer under the reverse charge mechanism.
  5. Maintenance of Accounts – Each registered dealer must maintain accounts of all the sales on which he has paid tax under RCM. He must maintain all the proofs and records too.

FAQs

1. What is Self-Invoicing?

When a person buys goods or services from an unregistered dealer, he is liable to pay tax under RCM. He is also required to generate a self-invoice since the unregistered seller would not issue a GST compliant invoice.

Note: Self Invoicing is not currently required since the provision of RCM on purchase from an unregistered dealer has been deferred up to 30/09/2019