The reverse charge mechanism (RCM) under the Goods and Services Tax (GST) in India is a system where the recipient of goods or services is liable to pay the tax instead of the supplier. This is in contrast to the normal GST mechanism where the supplier is responsible for collecting and remitting the tax to the government. Key Features of Reverse Charge Mechanism (RCM) under GST: Liability Shifted to the Recipient: Under RCM, the recipient of goods or services is liable to pay the GST, rather than the supplier. This means the buyer will have to pay the tax directly to the government and claim the Input Tax Credit (ITC), if applicable. Applicability of RCM: Reverse charge may apply in the following cases: Imports of Goods and Services: In the case of imports, the recipient is required to pay GST under RCM. Specified Goods and Services: Certain goods and services are notified by the government where RCM is applicable. These goods and services may include: Goods: For example, supplies made by unregistered dealers to registered dealers (like certain agricultural goods). Services: Such as legal services, services provided by a goods transport agency (GTA), and services from an individual advocate or a firm of advocates. Supply by Unregistered Dealers to Registered Dealers: If an unregistered supplier sells goods or services to a registered taxpayer, the recipient (the registered taxpayer) has to pay the GST under reverse charge. Notification of Goods and Services under RCM: The government issues notifications from time to time, specifying the goods and services that fall under RCM. Examples include: Services by an advocate or law firm. Goods transport agency services. Services provided by a director to a company. Import of services. Calculation and Payment of GST under RCM: The recipient is required to calculate the applicable GST on the goods or services received. The recipient must pay this amount directly to the government through their GST return (GSTR-3B). The recipient can claim the Input Tax Credit (ITC) on the reverse charge payments, subject to eligibility. Conditions and Exceptions: RCM is generally applicable to registered taxpayers, but it may be applicable to unregistered taxpayers in certain scenarios as well. There are exceptions where reverse charge does not apply, such as in cases where the value of goods or services is below a prescribed threshold or in certain intra-state transactions. Example of Reverse Charge Mechanism: Legal Services: If a company hires a lawyer (who is unregistered under GST), the company (the recipient) will be required to pay GST under reverse charge. Transport Services by Goods Transport Agency (GTA): If a registered business receives transport services from an unregistered GTA, the recipient of the service will have to pay GST under reverse charge. Key Points to Remember: ITC: The recipient can claim input tax credit on reverse charge payments, just like regular GST, subject to conditions. RCM Liability: In reverse charge, the recipient must ensure timely payment of GST and report the transaction in the GST return (GSTR-3B). Threshold Limit: In some cases, reverse charge is applicable only when the value of goods or services exceeds a specified threshold. Conclusion: Reverse charge mechanism under GST shifts the responsibility of paying tax from the supplier to the recipient. This mechanism is applied to certain specified goods and services, and it helps the government to ensure tax compliance, especially in cases where the supplier is unregistered. It is important for businesses to keep track of transactions that fall under RCM and pay the applicable tax on time while claiming the eligible input tax credit.

RENTING OF COMMERCIAL PROPERTY. Notification No. 09/2024-Central Tax (Rate), effective October 10, 2024, brought renting of commercial property by unregistered persons to registered persons under the RCM ambit. This posed compliance challenges for composition taxpayers, who are small-scale businesses or professionals with limited resources. Recognizing these difficulties, the GST Council has now excluded composition taxpayers from these RCM provisions. Key Recommendations of the 55th GST Council Meeting 1. Exemption for Composition Taxpayers: Taxpayers registered under the composition levy scheme are now excluded from the RCM obligations for renting commercial or immovable properties. 2. Regularization of Past Period: Transactions from October 10, 2024 (effective date of Notification No. 09/2024), to the date of issuance of the revised notification will be regularized on an "as-is-where-is" basis. This ensures no penalties for non-compliance during the interim period. Example of Practical Implication Consider Mr. Magizhan, a composition dealer running a small grocery store in Erode. In November 2024, he rented a shop from an unregistered landlord for Rs. 20,000 per month. Under Notification No. 09/2024, Mr. Magizhan was liable to pay GST on this rent under RCM. However, with the exclusion now recommended by the GST Council, Mr. Magizhan is no longer required to discharge GST under RCM for this rental transaction. Additionally, if he did not pay GST for this transaction during the interim period, it will be regularized without penalties. Benefits for Composition Taxpayers 1. Simplified Compliance: Composition taxpayers are spared from the complexities of calculating and discharging GST under RCM, reducing their compliance burden. 2. Cash Flow Relief: Small businesses often face tight cash flows. By excluding them from RCM, the financial strain caused by upfront GST payment is alleviated. 3. Retrospective Regularization: Non-compliances during the transition phase are regularized, providing clarity and avoiding disputes with tax authorities.