Builders & Promoters must follow Reverse Charge Mechanism (RCM) rules when purchasing goods and services. To qualify for a lower 1% or 5% tax rate, they must buy at least 80% of input goods and services from registered dealers. If they fail to meet this rule, they must pay 18% GST under RCM on the shortfall.
Key Rules for RCM Compliance
1.Tax Payment in Cash – Builders cannot use Input Tax Credit (ITC) to pay GST. They must pay in cash only.
2.ITC Reporting – They cannot claim ITC on these purchases. Instead, they must report it in their GSTR-3B return every month.
3.Separate ITC Records for Each Project – Developers must track purchases separately for each project, noting whether they are from registered or unregistered suppliers.
4.Tax on Shortfall – If purchases from registered dealers are less than 80%, they must pay 18% GST on the shortfall.
5.No ITC for Certain Transactions – GST laws do not allow ITC to offset RCM liabilities.
6.Mandatory Reporting – Builders must submit shortfall details on the GST portal before June 30 after the financial year ends.
What is Excluded from the 80% Calculation?
The 80% rule applies only to input goods and services, not capital goods. Some expenses do not count toward this rule, including:
- Electricity, Fuel (Diesel, Petrol, Natural Gas)
- Land, Development Rights, and Long-Term Lease Payments
- Salaries, Depreciation, Stamp Duty, and Interest on Loans
- Provisions and Expense Write-offs
Additionally, certain exempted expenses, such as interest payments to banks, are still included in the total calculation of unregistered purchases.
When Does RCM Apply?
| Type of Purchase | RCM Tax Liability |
|---|---|
| Purchases from registered dealers (80% or more) | No RCM |
| Cement from unregistered dealers | 28% GST under RCM |
| Capital goods from unregistered dealers | GST at applicable rates under RCM |
| Purchases below 80% from registered dealers | 18% GST under RCM |
RCM Tax Payment Deadlines
- For shortfall in registered purchases – Builders must pay RCM tax by June 30 of the next financial year.
- For cement from unregistered dealers – They must pay tax every month when they purchase cement.
By following these rules, builders and promoters can avoid penalties and stay compliant with GST laws. Keeping clear records and reviewing supplier sources regularly will help in meeting the 80% procurement requirement.
LinkedIn Link : RMPS Profile
This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.
Published on: February 21, 2025