How is RCM calculated under GST?

Reverse Charge Mechanism (RCM) in GST: Understanding its Calculation

Introduction
Under the Goods and Services Tax (GST) regime, the Reverse Charge Mechanism (RCM) places the responsibility of tax payment on the recipient of certain goods or services, rather than the supplier. This mechanism aims to prevent evasion of GST and ensure that tax is collected from the ultimate consumer.

Time of Supply
For RCM transactions, the time of supply is crucial for determining the tax liability. The time of supply is generally the date on which the goods or services are received or the date on which the invoice is issued, whichever is earlier.

Input Tax Credit (ITC)
The recipient of goods or services under RCM is not eligible to claim ITC on the tax paid. However, the supplier can claim ITC on the tax paid on inputs used to provide the services or goods.

Self-Invoicing Procedure
Under RCM, the recipient is required to issue a self-invoicing document to the supplier. This document should contain details such as the goods or services received, the value of the supply, and the GST amount payable. The self-invoicing document should be issued within 30 days from the date of receipt of goods or services.

Calculation of RCM
The calculation of RCM is as follows:

RCM Amount = Value of Supply x GST Rate applicable

For example, if a recipient receives goods worth Rs. 100,000 at an applicable GST rate of 18%, the RCM amount payable will be:

RCM Amount = 100,000 x 0.18 = Rs. 18,000

Compliance Requirements
To comply with RCM provisions, it is important to:

• Identify transactions that fall under RCM
• Determine the time of supply
• Issue self-invoicing documents within the stipulated time frame
• Pay the RCM amount to the government
• Maintain proper records and documentation for audit purposes

Conclusion
The Reverse Charge Mechanism under GST plays a vital role in ensuring tax compliance. By understanding the time of supply, ITC implications, self-invoicing procedures, and calculation methods, businesses can effectively implement RCM and avoid potential penalties.