GST Applicability under Reverse Charge Mechanism (RCM) on Services and Goods

In the Goods and Services Tax (GST) regime, the Reverse Charge Mechanism (RCM) shifts the tax liability from the supplier to the recipient of goods or services. Unlike the regular forward charge, where the supplier is liable to pay GST, under RCM, the recipient is required to pay the applicable GST directly to the government. RCM is governed by Section 9(3), 9(4), and 9(5) of the Central Goods and Services Tax Act, 2017 (CGST Act) for intra-state supplies and Section 5(3), 5(4), and 5(5) of the Integrated Goods and Services Tax Act, 2017 (IGST Act) for inter-state supplies.

Relevant Legal Provisions

Section	Description
Section 9(3)	Specifies categories of supply (notified by Govt.) on which tax shall be paid by the recipient under RCM.
Section 9(4)	Applies RCM on supply by an unregistered dealer to a registered person (restricted now).
Section 9(5)	E-commerce operator liable to pay GST on specified services.
Section 5(3) of IGST Act	Parallel to Section 9(3) for inter-state supplies.
Section 5(4) of IGST Act	Parallel to Section 9(4) for unregistered to registered supply.

Categories of Supply under RCM

A. RCM on Services [Section 9(3) of CGST Act]

S. No.	Description of Service	Supplier	Recipient	GST Rate
1	Goods Transport Agency (GTA) services for transportation of goods	GTA	Any registered person (if not paying 12% GST voluntarily)	5% (No ITC)
2	Legal Services by advocate or firm of advocates	Individual Advocate or Firm	Business entity	18%
3	Sponsorship Services	Any person	Body corporate or partnership firm	18%
4	Services by Arbitral Tribunal to business entity	Arbitral Tribunal	Business entity	18%
5	Services of Director to company	Director (non-employee)	Company or body corporate	18%
6	Services by Government or Local Authority (excluding renting, etc.)	Central/State Govt or LA	Business entity	Varies
7	Renting of Motor Vehicle (if service provider not paying GST @12%)	Individual/Firm/HUF	Body Corporate	5% or 12%
8	Security Services (not by company)	Any person other than company	Registered person (not Govt)	18%
9	Services of Recovery Agent	Recovery agent	Bank / NBFC / Financial Institution	18%
10	Transportation of goods by vessel from outside India to Indian port	Non-resident	Importer (under IGST Act, Sec 5(3))	5% IGST
11	Services by Insurance Agent	Insurance agent	Insurance company	18%
12	Services by Music Composer / Artist / Author by way of transfer or license of copyright	Individual artist/composer	Publisher, Music company, Producer	12% / 18%
13	Renting of residential property for business purposes (w.e.f. 18.07.2022)	Landlord (any person)	Any registered person (tenant)	18%
14	Services by a director to a company in any capacity other than employee	Director	Company or body corporate	18%
15	Sponsorship to a body corporate or partnership	Any person	Body corporate or firm	18%
16	Writers/Authors transferring rights to publishers	Author	Publisher	12% / 18%
17	Tenancy Rights transferred to developer for redevelopment (by outgoing tenants)	Tenant	Developer	Varies

📝 Notes:

These services are governed by Notification No. 13/2017 – CT (R) dated 28.06.2017, as amended from time to time.
Where applicable, the recipient must issue a self-invoice and pay the tax under RCM.
The input tax credit (ITC) of GST paid under RCM is available (subject to eligibility).

B. RCM on Goods [Section 9(3) of CGST Act]

Sl. No.	Goods Description	Supplier	Recipient	Notification
1	Cashew nuts (not shelled)	Agriculturist	Registered Person	Notification No. 4/2017-CT (R)
2	Bidi Wrapper Leaves	Agriculturist	Registered Person	Notification No. 4/2017-CT (R)
3	Silk yarn	Any person	Registered Person	Notification No. 4/2017-CT (R)
4	Used vehicles, seized/confiscated goods sold by Govt. Dept	Govt. Dept	Registered Person	Notification No. 4/2017-CT (R)

C. RCM under Section 9(4)

Originally, Section 9(4) required GST payment under RCM for any supply of goods/services by an unregistered person to a registered person. However, it was deferred and then modified.

Current Position:

Applicable only if the recipient is a promoter and the supply is for construction purposes.
Limited to specified goods/services such as cement and capital goods.

Sl. No.	Particulars	Applicable GST	Notification
1	Cement purchased by Promoter from unregistered dealer	RCM @28%	Notification No. 07/2019-CT (R)
2	Capital Goods used in construction	Applicable rate	Notification No. 07/2019-CT (R)

D. RCM under Section 9(5): E-Commerce Operators

The Government has notified certain services, where the e-commerce operator (ECO) is deemed the supplier and required to pay GST:

Sl. No.	Service Description	ECO Responsible	Notification
1	Passenger transport by radio-taxi, motor cab, etc.	Uber, Ola, etc.	Notification No. 17/2017-CT (R)
2	Accommodation services by unregistered suppliers	Oyo, Airbnb	Notification No. 17/2017-CT (R)
3	Housekeeping services	UrbanClap, etc.	Notification No. 17/2017-CT (R)
4	Restaurant services (except premises having > INR 20 L turnover)	Zomato, Swiggy	Notification No. 17/2021-CT (R)

Input Tax Credit (ITC) on RCM

Recipient can claim ITC of GST paid under RCM subject to eligibility and only after payment is made in cash (not from electronic credit ledger).
ITC claim should be supported with self-invoice and payment voucher.

Compliance Requirements

Compliance Area	Description
Self-Invoice	Required where the supplier is unregistered and recipient is liable to pay GST under RCM.
Payment Voucher	Issued at the time of payment to the supplier under RCM.
GSTR-3B	Tax under RCM is reported in Table 3.1(d).
GSTR-1	Not applicable for RCM supplies as supplier is not liable to file.
Books of Accounts	RCM entries must be separately maintained.

Common Examples

A company hiring legal services from a lawyer → RCM applicable.
Builder purchasing cement from an unregistered supplier → RCM applicable under Section 9(4).
Business entity hiring goods transport by road (GTA) → RCM applicable unless GTA opts to pay 12%.
Director receiving sitting fees from a company → Company liable to pay under RCM.

Conclusion

The Reverse Charge Mechanism (RCM) is a vital compliance provision under GST, intended to widen the tax base and improve accountability. It is essential for businesses to identify RCM transactions and discharge the liability on time to avoid penalties. Maintaining proper documentation, issuing self-invoices, and timely filing of returns are crucial to ensure seamless compliance.

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