RCM Under GST: Everything a Business Owner Should Know in 2025!
In the rapidly transforming taxation ecosystem, staying ahead of filing needs isn’t just an efficient practice but is a priority for business owners. One of the crucial aspects with too many misconceptions under the GST regime is the Reverse Charge Mechanism. The year 2025 marks the evolution of multiple tax reforms in our country; RCM under GST continues to flourish, causing a direct impact on businesses.
No matter if you deal with unregistered suppliers, import operations, or getting goods or services under RCM, knowing your tax liabilities becomes mandatory today.
This blog will take you through everything a business owner should know about RCM in GST. For taxpayers who wish to avoid penalties, streamline ITC claims, and ensure effortless return filings- This guide is a Savior for you!
Latest RCM Updates- Let’s Break Them Down!
Let’s quickly decode What is Reverse Charge Mechanism below before we move ahead with a detailed layout.
What is Reverse Charge Mechanism- Let’s Simplify it!
Reverse Charge Mechanism (RCM) under GST is just the opposite of what the traditional GST model looks like. While the general GST structure facilitates sellers to collect and deposit the tax with the government, RCM permits the buyers/recipients of the goods or services to do so.
Under the reverse charge mechanism in GST, when you purchase goods or services, you are directly liable to pay the GST to the Indian government, bypassing the supplier.
Reverse Charge Mechanism GST is applied mostly for unregistered suppliers, imported services, and predefined goods or services identified by the Indian government. It strengthens the taxation norms, especially for the unregulated or risky sectors.
So, for business owners, the reverse charge mechanism in GST doesn’t just refer to a technical phrase but is a compliance frontier you can miss out!
Standard GST Mechanism vs. Reverse Charge Mechanism
When is Reverse Charge Mechanism Applicable?
RCM is applicable when the responsibility for paying tax shifts from the supplier to the buyer or recipient of goods or services. Let’s scroll down below to check the applicability of reverse charge mechanism under GST:
1. Services Imported to India!
- RCM applies when services are received in India from a foreign service provider.
- The Indian buyer or the recipient pays the IGST to the government on behalf of the overseas trader.
2. Purchase Made from Unregistered Supplier!
- If a registered buyer purchases goods or services from an unregistered supplier or a dealer, RCM is levied under specific notifications shared by the government.
- Under these circumstances, the obligation to pay GST lies with the registered recipient, who must remit it directly to the government.
Read More: GST Invoicing Rules for Job Work
3. Notified Goods and Service Supply!
- Applicability of reverse charge mechanism under GST for as officially notified by the government for goods and services includes the following:
- Advocate or a law firm providing legal services
- Sponsorship facilities
- Goods transported by an agency
- Motor vehicle renting service under the specific clause.
- Services are availed by the businesses from the Indian government, which excludes the exempted deliverables.
4. Supplies Availed Through Ecom Operators!
- For specific scenarios that involve online portals like restaurant services through food delivery applications, RCM in GST is applicable.
- Here, the responsibility to pay GST shifts to the eCommerce operator rather than the actual supplier.
Also, check out GST Registration for a Partnership Firm
When is Reverse Charge Mechanism Applicable under the Current GST Structure?
In the current situation, RCM is levied on service tax for services catering to human resources, the insurance sector, goods transport companies, and more. It has nothing called a partial reverse charge, and thus, the recipient pays the full amount of GST on the supply.
For unregulated sectors, earlier, the Indian government found it tedious to collect service tax. Integrating RCM under GST has helped in applying and collecting taxes on these services.
Reverse Charge Mechanism Example: Making it Easier for You!
A registered dealer in Ahmedabad, Gujarat, avails goods or services from a composition taxpayer in Jaipur. The goods supplied are worth ₹10,000 with an 18% GST rate applied!
Registered taxpayers in Ahmedabad will be paying ₹1,800 as a GST amount to the government, which can be further claimed as an ITC.
For a detailed understanding of the applicable GST rates on various goods and services, you can refer to our comprehensive GST Rates List India to ensure accurate tax calculations under RCM.
How to Compute the Time of Supply for Reverse Charge Transactions in GST?
- For Goods:
For goods, the earliest date among the following determines the time of supply:
- The date the goods are received or transferred to the recipient.
- The date when the payment is documented in the recipient’s accounts.
- The date the transaction appears in the recipient’s bank statement.
- The date that appears 30 days post the invoice invoice was issued by the supplier
Note: If none of the above details help determine the time of supply for RCM under GST, the date when the transaction is recorded in the recipient’s books will be taken into account.
- For Services:
The time of supply under the reverse charge mechanism in GST is based on whichever of the following dates comes first
- Payment date, i.e., an entry in the record book or bank debit statement- depending on the earliest.
- The date that falls 60 days after the dealer issues the invoice.
If the time of supply cannot be ascertained from the previous criteria, the date recorded in the recipient’s accounts shall be considered.
What is Self Invoicing- A Quick Definition!
When transactions with unregistered suppliers are covered under RCM, the recipient must create a self-invoice. Since the supplier can’t generate GST-compliant invoices and taxes are to be paid by the recipient, self-invoicing becomes crucial here.
3 Important Key Insights You Should Note Down!
- The recipient must submit the applicable GST amount to the Indian government on every 20th of the succeeding month under RCM.
- Details of RCM transactions are not automatically filled in Form GSTR-2 and must be entered manually.
- Time of supply under RCM in GST is identified when the liability arises to keep an eye on payments and invoices.
Let’s Conclude!
RCM under GST, no longer remains a compliance option- it becomes essential for every business owner who wants to flourish in 2025. It is a strategic move taken by the unregistered suppliers, taxpayers handling imports, or the ones availing legal services.
The Reverse Charge Mechanism in GST gives a winning edge to your business by facilitating streamlined ITC claims, clarity, and reduced penalties. If you have any queries, feel free to connect with our experts!
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FAQs on RCM Under GST!
1. Who will issue the invoice under RCM in GST?
The receiver issues the invoice under RCM.
2. Is RCM Shown in Form GSTR-1?
The supplier needs to report sales for every invoice in his GSTR-1 form.
3. What is a commission agent in RCM under GST?
In RCM under GST, the tax liabilities are shifted to the recipient from the supplier, which is called commission agent.
4. Who is exempted from paying RCM under GST?
Reverse charge mechanism in GST applies only when the supply involves a charge. If the supply is exempted from it, RCM doesn’t apply.
