Is RCM applicable on professional fees?

RCM Applicability on Professional Fees

Introduction

Reverse charge mechanism (RCM) refers to the requirement for the recipient of certain services to pay Goods and Services Tax (GST) directly to the government instead of the service provider. This mechanism ensures that GST is collected at the point of consumption rather than the point of supply.

Applicability of RCM on Professional Fees

As a general rule, RCM is applicable on the supply of services by unregistered persons to registered persons. However, there are certain exceptions to this rule, including services rendered by retired employees.

Exclusion for Retired Employees’ Professional Services

Under the GST law, professional services provided by retired employees are specifically excluded from the scope of RCM. This exemption applies to services rendered by individuals who have previously been employed and are now retired.

Reason for Exclusion

The exclusion of retired employees’ professional services from RCM is intended to simplify compliance for both service providers and recipients. Retired individuals typically provide services on an ad-hoc basis and may not have the infrastructure to manage GST registration and compliance.

Implications for Service Providers

Retired employees who provide professional services are not required to register under GST and are not liable to pay GST on the services they provide. However, they must provide invoices or receipts to their clients and clearly state that RCM is not applicable.

Implications for Service Recipients

Registered persons who receive professional services from retired employees are not required to pay GST directly to the government under RCM. However, they must maintain records of such services received and report them in their GST returns.

Conclusion

Retired employees’ professional services are excluded from the applicability of RCM under the GST law. This exemption simplifies compliance for both service providers and recipients and ensures that GST is collected at the appropriate point in the transaction.