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Reverse Charge Mechanism (RCM) in Taxation

The Reverse Charge Mechanism (RCM) shifts the tax liability from the supplier to the recipient in taxation. It is applicable in scenarios such as Goods and Services Tax (GST), import of services, and specific B2B transactions. Compliance requires the recipient to self-invoice, report the tax, and make cash payments, while also allowing for Input Tax Credit if used for business purposes.

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33 views1 page

Reverse Charge Mechanism (RCM) in Taxation

The Reverse Charge Mechanism (RCM) shifts the tax liability from the supplier to the recipient in taxation. It is applicable in scenarios such as Goods and Services Tax (GST), import of services, and specific B2B transactions. Compliance requires the recipient to self-invoice, report the tax, and make cash payments, while also allowing for Input Tax Credit if used for business purposes.

Uploaded by

mukeshandagarwal
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Reverse Charge Mechanism (RCM) in Taxation

Definition:
The Reverse Charge Mechanism (RCM) is a taxation system where the liability to pay tax is
shifted from the seller (supplier) to the buyer (recipient). Instead of the supplier collecting and
remitting tax to the government, the recipient of goods or services is responsible for paying the
tax directly.

Applicability of Reverse Charge

RCM is commonly applied in:

1. Goods and Services Tax (GST) – Certain goods and services are notified under RCM,
requiring the recipient to pay GST.
2. Import of Services – When services are procured from a foreign supplier, the recipient
in the importing country is liable to pay tax.
3. Specified Transactions – Some business-to-business (B2B) transactions, such as
procurement from unregistered dealers, fall under RCM.

Examples of Reverse Charge under GST (India)

 Goods: Supply of raw cotton, cashew nuts (not shelled/peeled), and certain construction
services.
 Services: Legal services provided by an advocate, services from a government body, and
services from a transporter.

Compliance Requirements

 The recipient must self-invoice and report the tax in their returns.
 Tax paid under RCM is eligible for Input Tax Credit (ITC) if used for business
purposes.
 Payment of tax must be made in cash (not through ITC).

Conclusion

The Reverse Charge Mechanism helps in preventing tax evasion and ensures compliance,
especially in cases where the supplier is not registered or operates from a different tax
jurisdiction.

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