What is the reverse charge rule for GST?

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The reverse charge rule for Goods and Services Tax (GST) is a mechanism that shifts the responsibility for paying the tax from the supplier of goods or services to the recipient or buyer. Normally, the supplier collects the tax from the customer and pays it to the government; under the reverse charge, this process is flipped.

What is the reverse charge rule of GST?

Reverse Charge means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply.

How does RCM work in GST?

The Reverse Charge Mechanism (RCM) in GST is a system where the recipient of goods or services is liable to pay the tax instead of the supplier. For example, if an unregistered dealer sells goods to a registered recipient, the tax liability shifts to the recipient.

What is the reverse charge rule?

The reverse charge works as follows: It is only relevant to supplies that are subject to 5% or 20% VAT. Instead of the supplier charging VAT and accounting for output tax in box 1 of their next return, the customer makes the box 1 entry instead and therefore the supplier does not charge VAT on their sales invoice(s).

What is the new rule of RCM 2025?

Reverse Charge Mechanism (RCM) shifts the GST payment responsibility from the seller to the buyer for specific goods and services. In 2025, the notified list includes select agricultural goods, certain services like legal or GTA, and imports.

What is REVERSE CHARGE MECHANISM || GST RCM in GST

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Who is exempted from RCM under GST?

Note: RCM is not applicable to, - ➢ A Department or Establishment of the CG, SG or UT; or ➢ Local authority; or Governmental agencies, Who have taken registration under CGST only for deducting tax u/s 51 and not for making a taxable supply. ➢ A registered person paying tax under section 10 of the said Act.

What are the new GST rules from 1st January 2025?

The shift to a two-slab system of 5% and 18%, removing the earlier 12% and 28% rates, will make taxation more transparent and easier to follow. At the same time, a 40% on luxury and sin goods such as pan masala, tobacco, aerated drinks, high-end cars, yachts, and private aircraft ensures fairness and revenue balance.

What is an example of a reverse charge?

Example – A trader who is registered in GST takes services of Goods Transport Agency (GTA) for Rs. 10,000. This service is listed under the reverse charge list therefore trader has to pay tax @ 18% on Rs. 10,000 on RCM.

How to comply with reverse charge rules?

The supplier must show the amount of VAT that their customer must declare on their return with the reverse charge or the rate of VAT that applies to the job. The answer will usually be 20% but the rules also apply to jobs that are subject to 5% VAT, such as the conversion of a commercial property into dwellings.

What is the VAT reverse charge in Germany?

What is the reverse charge procedure? The reverse charge procedure is a regulation that is anchored in German and European VAT law on the basis of Article 196 of the German VAT Act (UStG). In most cross-border supplies of goods and services between taxable companies, the tax liability is shifted to the recipient.

How is GST RCM calculated?

RCM is calculated based on the applicable GST rates using the formula: (Value of Goods/Services) x (Applicable GST Rate). You can also make use of the GST calculator online to get the GST rate of the product or services.

Who is responsible for reverse charge?

Under the reverse charge mechanism, the seller does not charge VAT on the invoice. Instead, the buyer is responsible for calculating the VAT due on the transaction and reporting it in their own VAT return as both output tax (as if they had sold the item) and input tax (as if they had paid the VAT).

How to pay GST on reverse charge?

Any amount payable under reverse charge shall be paid by debiting the electronic cash ledger. In other words, reverse charge liability cannot be discharged by using input tax credit. However, after discharging reverse charge liability, credit of the same can be taken by the recipient, if he is otherwise eligible.

How to calculate reverse charge in GST with example?

Example Calculation:

  1. Rent paid to an unregistered supplier = ₹50,000.
  2. GST Rate = 18%
  3. GST Payable under RCM = ₹50,000 × 18% = ₹9,000.

What is the purpose of a reverse charge?

Reverse Charge concerns a special regulation in the sales tax law, according to which not the service provider, but the recipient of the service has to pay the sales tax.

How to determine if RCM is applicable?

RCM is applicable on notified goods/services, purchases from certain unregistered suppliers, and e‑commerce specified supplies. RCM transactions are reported by the recipient in GSTR-3B Table 3.1(d) for tax liability and Table 4 for ITC; registered suppliers report in Table 4B of GSTR-1.

Who pays the VAT on reverse charge?

As a general rule, businesses charge VAT on supplies and deduct VAT on purchases. The reverse charge mechanism is a deviation from this rule where the supplier does not charge VAT on the invoice and the customer pays and deducts VAT simultaneously through the VAT return.

How to rcm in GST return with example?

After paying GST under RCM, you are eligible to claim ITC in the same tax period, if you're making taxable supplies. Example: You paid ₹18,000 GST under RCM for legal services. You can now claim ₹18,000 as ITC in your GSTR-3B and adjust it against your output tax liability.

Is an invoice mandatory for RCM?

Rule 47A, effective 1 Nov 2024, introduced new self-invoicing and time-of-supply provisions for RCM. Recipients must now generate self-invoices within 30 days of receiving goods or services from unregistered suppliers to remain eligible for ITC.

What do I put on my invoice for VAT reverse charge?

CIS domestic reverse charge VAT invoices must include the following information:

  1. Your business name, address, and VAT number (VRN)
  2. The buyer's name, address, and VAT number (VRN)
  3. A unique invoice number.
  4. The invoice issue date and the date of supply.
  5. The description, quantity, and net price of each product or service.

Who is eligible for RCM in GST?

RCM applies to goods and services and impacts registered and unregistered businesses. This mechanism is particularly applicable in cases where the supplier is an unregistered dealer or where the value of goods or services exceeds a specified threshold.

How is reverse charge different from standard VAT?

Within a VAT system, a VAT-registered supplier typically charges VAT on its goods or services. The supplier collects VAT from the customer and then remits it to the relevant tax authority. Under the reverse charge mechanism, this responsibility shifts from the supplier to the customer.

Do I need GST if my turnover is below 20 lakhs?

If a company's annual sales are below Rs. 40 lakhs for goods or Rs. 20 lakhs for services, or if the startup deals in exempt items or services, it is not required to register for GST.

Who qualifies for GST 2025?

Eligibility Criteria for the GST/HST Credit Payment 2025

You may qualify for the GST/HST credit payment 2025 if you meet the following conditions: You must be a resident of Canada for income tax purposes. You must be at least 19 years of age before the payment month, or meet other qualifying conditions if younger.

From when is 40% GST applicable?

India's GST regime is undergoing a landmark transformation with the 56th GST Council meeting unveiling GST 2.0 - next-generation reforms simplifying tax slabs to 5%, 18%, and 40%. Effective from September 22, 2025, these reforms aim to ease compliance, boost consumption, and fuel economic growth.