📘 Comprehensive Note on Reverse Charge Mechanism (RCM) Liability under GST

🔹 What is Reverse Charge Mechanism (RCM)?

Under the Goods and Services Tax (GST) regime in India, the Reverse Charge Mechanism (RCM) shifts the liability to pay tax from the supplier to the recipient of goods or services.

🔸 Normally: Supplier collects and pays GST.
🔸 Under RCM: Recipient pays GST directly to the government.

🔹 Legal Provisions

Law / Section	Description
Section 9(3), CGST Act / Section 5(3), IGST Act	Government notifies specific goods/services where recipient pays GST under RCM.
Section 9(4), CGST Act / Section 5(4), IGST Act	Supplies by unregistered persons to registered recipients may be taxed under RCM.
Relevant Notifications	Notification No. 13/2017, 10/2017 (IGST), 12/2017 (exemptions), etc.
Rule 46 of CGST Rules	Covers invoicing rules for RCM.

🔹 Types of RCM Scenarios

1. Notified Supplies under Section 9(3) / 5(3)

RCM applies regardless of whether the supplier is registered or not.

✅ Common Examples:

Legal services by an advocate
Services from Goods Transport Agencies (GTA)
Director services to a company
Renting of motor vehicles (in some cases)
Sponsorship services
Import of services from non-taxable territory

2. Supply from Unregistered Persons [Section 9(4)]

Applicable only when:

Supplier is unregistered
Recipient is registered
Supply is taxable and not exempt

🔸 Earlier widely applicable, but currently restricted mainly to:

Real estate sector
Specific notified categories

3. Services by Government or Local Authorities

RCM applies when:

Services are provided to a business entity
The service is not exempt under Notification 12/2017

✅ RCM applies to:

Renting of immovable property
License fees (liquor, mining, etc.)
Audit by CAG to company

❌ RCM NOT applicable to:

Birth/death certificates
Court services
Sovereign functions (e.g., police, passport, etc.)

🔹 Mechanism & Compliance under RCM

Area	Details
Tax Payment	Must be paid in cash via Electronic Cash Ledger
Input Tax Credit (ITC)	Can be claimed later (if eligible)
Invoice Requirement	Recipient must raise self-invoice and payment voucher (if supplier is unregistered)
Returns	Disclose in GSTR-3B (Table 3.1(d)) and GSTR-1 (if applicable)
Registration	Mandatory for recipients liable under RCM, even below threshold
Time of Supply	Earliest of date of payment or 60 days from invoice date (services)

🔹 Input Tax Credit (ITC) on RCM

Allowed, provided:
- Recipient is eligible for ITC
- Goods/services are used for business
- Tax is paid under RCM and reported in returns

❗Supplier cannot claim ITC for RCM supplies.

🔹 Sector-Specific Applications

✅ Real Estate / Construction

RCM on cement, capital goods purchased from unregistered persons
Transfer of development rights, FSI, long-term lease

✅ Import of Services

IGST paid by recipient under RCM

✅ E-commerce

Operators may be liable to pay GST under RCM for certain services (like transportation)

🔹 Summary Table: Common RCM Scenarios

Service / Supply	Supplier	Recipient	RCM Applicable?
Legal Services	Advocate	Business entity	✅ Yes
GTA Services	GTA	Registered person	✅ Yes
Director Services	Director	Company	✅ Yes
Govt Renting Property	Govt	Business	✅ Yes
Passport Issuance	Govt	Individual	❌ No
Import of Services	Foreign supplier	Any	✅ Yes (IGST)

🔹 Key Do’s and Don’ts

✅ Do:

Check if supply is under notified RCM list
Maintain proper invoices and vouchers
Pay RCM taxes on time
Claim ITC if eligible
Report correctly in returns

❌ Don’t:

Pay RCM using ITC (must be cash)
Miss changes in government notifications
Forget registration if liable under RCM

🔹 Latest Notifications & Clarifications (as of 2025)

RCM on renting of residential dwelling (if used for business): Applicable
Clarified RCM on Director Services: Even for sitting fees
Real estate-specific RCM compliance: Still enforced
CBIC FAQs provide practical clarity on complex RCM cases

✅ Conclusion

RCM under GST is a critical compliance area that shifts tax liability to the recipient for specific transactions. Businesses must:

Monitor notified services and unregistered purchases
Pay tax in cash
Maintain documentary evidence
Ensure timely and accurate reporting in GST returns

Non-compliance leads to interest, penalty, and loss of ITC eligibility.

✅ RCM Applicability Checklist – Government Services & Fees (GST)

Sl. No.	Service/Fee by Government or Local Authority	RCM Applicable?	Remarks
1	Renting of Immovable Property (Commercial Use)	✅ Yes	RCM applies when rented to a registered business entity.
2	Liquor License Fee / Excise License	✅ Yes	Treated as a service, RCM applies.
3	Mining Rights / License	✅ Yes	Subject to RCM when given to business entities.
4	Toll Charges on Highways	❌ No	Exempt from GST under Notification 12/2017.
5	Vehicle Registration Fee (Commercial Vehicles)	✅ Yes	RCM applies if paid for business/commercial use.
6	Vehicle Registration Fee (Personal Use)	❌ No	RCM not applicable for individuals/non-business use.
7	Fire NOC / Safety Clearances	✅ Yes	RCM applies if used for business operations.
8	Birth / Death Certificate Fees	❌ No	Sovereign function; exempt under Notification 12/2017.
9	Passport / Visa Fees	❌ No	Exempt; not considered taxable supply.
10	Fines & Penalties (e.g., traffic challans)	❌ No	Not a consideration for supply — not liable to GST.
11	Court Fees / Legal Proceedings	❌ No	Services by courts/tribunals are exempt.
12	Police / Ambulance / Municipal Health Services	❌ No	Exempt as sovereign services.
13	CAG Audit Fees Charged to Companies	✅ Yes	RCM applies when recipient is a business entity.
14	Municipal Renting of Commercial Shops	✅ Yes	RCM on renting applies if recipient is a business.
15	Training Services / Workshops by Govt Departments	Depends	Check if the service is exempt or not.
16	Tender Fees / Application Fees	❌ No	Considered exempt or non-taxable generally.
17	Permission/License Fees (e.g., pollution NOC)	✅ Yes	RCM applies if for business purposes.
18	E-Governance Services (CSC / eSeva)	❌ No	Mostly exempt, depending on service provider.

📝 General Rules to Determine RCM Applicability:

✅ RCM applies if:

Service is taxable
Provided by Central/State Govt or local authority
Recipient is a business entity
Not specifically exempted by Notification 12/2017

❌ RCM does not apply if:

Service is rendered in sovereign capacity (e.g., policing, courts)
Recipient is not a business entity
Fee is for statutory function without consideration

📌 Practical Tips:

Always determine the purpose of the fee/service.
Check recipient's status – individual or business.
Refer to latest notifications and CBIC circulars.
Maintain self-invoice/payment voucher where RCM applies.
Pay GST in cash, then claim ITC (if eligible).