Indirect tax is where the supplier collects the tax from the recipient and deposits it with the Government. However, sometimes the recipient pays the tax directly. This is called the Reverse Charge Mechanism (RCM).
What is Reverse Charge Mechanism (RCM)?
Under RCM, the recipient of goods or services pays the tax to the Government instead of the supplier. This is outlined in Section 9 of the CGST Act, 2017, and Section 5 of the IGST Act, 2017. These sections allow the Central Government to specify which goods and services fall under RCM.
RCM on Services Received from the Government
As Per Notification No. 13/2017-CT (R) and Notification No. 10/2017-IT (R), business entities receiving certain government services must pay GST under RCM. Here’s a breakdown:
- Supplier: Central Government, State Government, Union Territory, or Local Authority.
- Recipient: Any business entity in the taxable territory.
- Liability: The business entity must pay the applicable GST.
Applicability
The term “business entity” isn’t defined in these notifications. However, another notification defines it as any person carrying out business activities within the taxable territory.
Exceptions
There are specific services from the Government where the recipient does not pay GST under RCM:
- Renting of immovable property.
- Services by the Department of Posts (excluding services to the Government).
- Services related to aircraft or vessels in a port or airport.
- Transport of goods or passengers.
Conclusion
Business entities must assess their transactions to determine if they need to pay GST under RCM for services received from the Government. They should consider:
- If the payment is for a service or just a deposit of taxes or duties.
- Whether the service falls under the specified exceptions.
Understanding these factors ensures compliance and avoids issues with tax authorities.
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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.
