December 17, 2021

GST Reverse Charge Mechanism (RCM) basically means that the GST is to be paid and deposited with the Govt. by the recipient of Goods/Services and not by the supplier of Goods/Services.

Under the normal mechanism of levy of GST, the receiver of goods/services pays the GST to the supplier of goods/services and such supplier then deposits the GST with the Govt. (after taking the benefit of input tax credit).

However, under the Reverse Charge Mechanism, the GST paid and deposited by the recipient with the Govt. on behalf of the supplier of service.

When is GST Reverse Charge Mechanism applicable?

GST Reverse Charge Mechanism (also known as RCM) is not applicable under normal circumstances. It is only applicable under the circumstances which are specifically mentioned in Section 9(4) and Section 9(3).

Reverse Charge under Section 9(4) – Supply from Unregistered to Registered Person

If a person not registered under GST supplies Goods or Services to a person who is registered under GST, then in such cases – Reverse Charge Mechanism would get applicable i.e. the GST would be required to be paid by the Registered Person directly to the Govt. on behalf of the supplier.

However, in case of supply of exempt goods or services, GST under Reverse Charge Mechanism shall not be applicable.

Exemption to Reverse Charge under Section 9(4)

Reverse Charge provisions would not be applicable if the aggregate value of such supplies of goods or services or both received by a taxable person from any or all the suppliers, who are not registered, does not exceed Rs 5,000 in a day.

In other words, if the total supply of goods or services from unregistered persons does not exceed Rs 5,000 in a day, then the provisions of reverse charge would not be applicable.

Reverse Charge under Section 9(3) – Goods & Services notified by Govt. by levy of RCM

Reverse Charge Mechanism is also applicable on certain goods and services which are notified by the Govt. Reverse Charge under Section 9(3) is applicable for both inter-state as well as same state transactions.

Date of Payment

For the purpose of computation of Date of Supply, the Date of Payment shall be earlier of the following:-

1.  The date on which the payment is debited from his bank account or

2.  The date on which the recipient entered the payment in his books

Now, we hope you understand the provisions related to reverse charge mechanism under GST, for any further queries, please visit us.

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