Answer By law4u team
The Reverse Charge Mechanism (RCM) under GST is a system where the recipient of goods or services pays the tax instead of the supplier. Normally, under the Central Goods and Services Tax Act, 2017, GST is paid by the supplier. But under reverse charge, this responsibility is “reversed,” and the buyer becomes liable to pay GST directly to the government. When is reverse charge applicable? RCM applies in two main situations: 1. Notified goods or services The government specifies certain goods or services where RCM is mandatory. In such cases, even if the supplier is registered, the buyer must pay GST. 2. Unregistered supplier to registered buyer If a registered business buys goods or services from an unregistered supplier, reverse charge may apply (in notified cases). How it works Supplier provides goods/services but does not collect GST Recipient calculates GST on the transaction Recipient pays GST directly to the government Recipient can claim input tax credit (ITC) if eligible Example If a company hires a legal consultant (notified service under RCM), the company: Does not pay GST to the consultant Instead, it pays GST directly to the government Then claims ITC if applicable Purpose of RCM Bring unorganized sectors under GST net Prevent tax evasion Ensure tax collection even when supplier is unregistered Improve compliance in specific high-risk transactions In summary Reverse Charge Mechanism is a GST system where the buyer, not the seller, is responsible for paying tax directly to the government, especially in notified cases or certain unregistered transactions.
