Reverse Charge Mechanism (RCM) under GST

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Sakshi Shah

GST
ITC
Reverse Charge Mechanism
Last updated on April 26th, 2023

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

Reverse Charge Mechanism (RCM)

GST under Reverse Charge Mechanism

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

How can a buyer pay GST under reverse charge if he/she does not have a GST registration?

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.

Can I claim Input Tax Credit of the tax paid under the Reverse Charge Mechanism?

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.

I am registered under GST in Tamil Nadu. I am buying goods from unregistered dealer of Karnataka, should I take registration in Karnataka to discharge GST under Reverse Charge Mechanism?

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.

Got Questions? Ask Away!

  1. 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!

  2. 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!

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