What is the RCM basis of GST?

Reverse Charge Mechanism (RCM) in GST

The Reverse Charge Mechanism (RCM) is a unique provision in the Goods and Services Tax (GST) system that shifts the tax liability from the supplier of goods or services to the recipient. Under RCM, the recipient of the goods or services is responsible for calculating, collecting, and paying the GST due on the transaction.

Mechanism of RCM

Typically, in GST, the supplier of goods or services is liable for filing a GST return and paying the GST due. However, under RCM, this responsibility falls upon the recipient in the following scenarios:

• When goods are received from an unregistered supplier.
• When services are received from an overseas supplier.
• When certain specific goods or services are received, such as:
  • Import of goods
  • Supply of immovable property
  • Purchase of goods from a composition dealer
  • Services provided by a non-resident online information and database access or retrieval (OIDAR) service provider

Impact on Accounting and Compliance

RCM significantly impacts the accounting and compliance responsibilities of both the supplier and the recipient.

Supplier:

• The supplier is not required to collect GST from the recipient.
• The supplier must still issue an invoice or bill of supply, but it should clearly mention that GST is payable by the recipient under RCM.

Recipient:

• The recipient is responsible for calculating the GST payable on the transaction.
• The recipient must file a GST return and pay the GST due on the reverse charge basis.
• The recipient must also issue a debit note or self-invoice reflecting the GST liability under RCM.

Benefits of RCM

RCM serves several key purposes:

• Prevents tax evasion by unregistered suppliers.
• Facilitates tax collection from international suppliers.
• Simplifies compliance for certain types of transactions.

Conclusion

The Reverse Charge Mechanism (RCM) in GST is a crucial provision that ensures compliance and prevents tax avoidance. By shifting the tax liability to the recipient in specific scenarios, GST ensures that all transactions are accounted for and the appropriate GST is paid. Both suppliers and recipients must be aware of the provisions related to RCM to meet their accounting and compliance obligations effectively.