Question

What is the Reverse Charge Mechanism (RCM) under GST ?

Hint:

Think about who pays the GST to the government. Under RCM, the recipient pays it instead of the supplier.

Answer 1

Step 1: Understand the normal rule:
Under GST, the supplier of goods or services normally collects the tax from the buyer.
The supplier then deposits that tax with the government.
This is called the Forward Charge Mechanism.

Step 2: Define the Reverse Charge Mechanism:
In the Reverse Charge Mechanism (RCM), the liability to pay GST shifts from the supplier to the recipient.
The recipient of the supply pays the tax directly to the government.
The supplier does not charge GST on the invoice in such cases.

Step 3: Know where it applies:
RCM applies only to the goods and services that the government notifies, mainly under Section 9(3) and Section 9(4) of the CGST Act.
It also applies to import of services under Section 5(3) of the IGST Act.
Examples are services of a goods transport agency, services of an advocate, and import of services.

Step 4: Why the government uses it:
It helps collect tax where the supplier is small, unregistered or outside India.
The recipient can later claim Input Tax Credit on the tax paid under RCM, if the supply is used for business.

Final Answer:
RCM is the system in which the recipient of the supply, and not the supplier, pays the GST to the government.