What is the interest rate on RCM in GST?

Understanding the Interest Rate on Reverse Charge Mechanism (RCM) in GST

The Reverse Charge Mechanism (RCM) in India’s Goods and Services Tax (GST) system requires the recipient of certain goods and services to pay GST instead of the supplier. This measure aims to prevent tax evasion and ensure compliance.

When GST is payable under RCM, the recipient must pay the applicable tax rate on the transaction. If the GST is not remitted promptly, interest will be charged.

Interest Rate on RCM in GST

The interest rate on unpaid GST under RCM is 18% per annum. This interest accrues from the date the GST becomes payable until it is paid in full.

Offsetting Interest with Input Tax Credit

Fortunately, businesses that incur interest charges on RCM can offset this expense by claiming an input tax credit (ITC) on the interest amount. The ITC mechanism in GST allows businesses to reduce their tax liability by utilizing the GST paid on their purchases and expenses.

Claiming ITC on Interest

To claim ITC on interest charges under RCM, businesses must meet the following conditions:

• The interest must be related to the supply of goods or services that are eligible for ITC.
• The supplier of the goods or services must be registered under GST.
• The recipient must have a valid tax invoice or debit note for the interest charges.

Deadline for Claiming ITC

Businesses have until November 30th of the financial year following the year in which the interest was incurred to claim ITC on the interest amount. Failure to claim ITC within this deadline will result in the loss of the credit.

Consequences of Late Payment

Besides interest charges, late payment of GST under RCM can also attract penalties and legal action. Therefore, it is crucial to remit GST due under RCM promptly to avoid these consequences.

Conclusion

The interest rate on RCM in GST is 18% per annum. Businesses can offset this interest expense by claiming an input tax credit, but they must do so before the November 30th deadline to avoid losing the credit. Timely payment of GST under RCM is essential to avoid penalties and ensure compliance with GST regulations.