e-Text_Week_3

Unit 3: Reverse Charge Mechanism (RCM)

Section 11 of CGST Act and Section 6 of IGST Act empower the government to grant exemption from
tax if it is necessary in Public Interest to do so, on recommendation of GST Council by notification or
a special order.
Goods Exempted from Tax: A list of items has been notified as exempted from whole tax. Every day
items used by the common man have been included in the list of exempted items. Items like
unbranded atta/ mayda/ besan, unpacked food grains, milk, egg, curd, lassi and fresh vegetable are
among the items exempted from GST.

Services Exempted from Tax: A very detailed notification have been issued under GST law providing
exemptions on supply of various services. Here we discuss few of them.
Health care Sector (a) Health care services by a clinical establishment / an authorised medical
practitioner. (b) Services provided by way of transportation of patient in an ambulance. (c) Services
by a veterinary clinic for the health of animals or birds. (d) Services provided by blood banks
Amusement/ Entertainment Sector (a) Services provided by an artists by way of a performance [not
brand ambassador] in the folk or classical art form of music, dance or theatre and consideration
charged doesn’t exceeds Rs. 1,50,000 per event. (b) Services by way of admission to a museum,
national park, zoo etc. (c) Service by way of right to admission to the following event (i) circus,
dance, drama or ballet. (ii) award function, concert, musical performance (iii) sporting event —
where consideration doesn’t exceeds Rs. 250 per person.
Transportation of Passenger (a) Services of transportation of passenger by railways [other than first
class or AC Coach] (b) Services of transportation of passenger through (i) Metro (ii) Monorail (iii)
tram (iv) Inland waterways. (v) Public transport (vi) Metered Cab or auto rickshaws [other than
Radio Taxi] (vii) Stage carriage other than AC stage carriage. (vii) Non-AC contract carriage
Transportation of Goods (a) Services of transportation of goods by way of road [except the services
of Goods Transportation Agency (GTA) or courier Agency] or by way of Inland water ways.
(b) Services by way of transportation of Goods by rail or a vessel from one place in India to another
of following goods (i) Defence of Military equipment (ii) Newspaper or magazine (iii) agricultural
produce (iv) milk, salt and food grain including flours, pulses and rice. (c) Services provided by a GTA
by way of transport in a goods carriage of (i) agricultural produce (ii) Goods where consideration
charged in a single carriage not exceeding Rs. 1500 (iii) Goods, where consideration charged for
transportation of all such goods not exceeding Rs. 750.
Financial/Banking sector (a) Interest charged as a consideration of deposit, loans, or advances [other
than interest in credit card] except loan processing charge.
Sports Sector (a) Services provided to a recognised sports body [BCCI, CAB etc.) by (i) Player, referee,
cooch, umpire team manager (ii) Other recognised sports body Note : Indian Premier League, Indian
Super League are established on the line of Franchisee-system. These franchisees are not recognised
sports body.
Food/ Agricultural Sector (a) Services relating to cultivations of plants and rearing of all life form of
animals (other than horses) by way of (i) agricultural Operation (ii) Supply of farms labour (iii)
Processes carried out at agricultural farm (tending, pruning, cutting, drying, clearing, trimming etc.)
(iv) Relating of Agro-machinery (v) Loading, unloading, packing, storing of agricultural produce. (vi)
Agricultural extension services. (eg- farmers educations or training)
(vii) Services by way of slaughtering of animals.
Public Convenience Service (a) Services by way of public conveniences such as provision of facilities
of bathroom, washrooms, toilets etc. (b) Services of public libraries (c) Services by way of access to a
road or bridge on payment of toll charges (d) Transmission or distribution of electricity
Education Sector (a) Services provided by an educational institution to its student, faculty and staff
(b) Services provided by any one to an educational institution by way of (i) Transportation of
students, faculty and staff (ii) Security, clearing, house keeping. (iii) Admission, examination (c)
Services by way of training or coaching in recreational activities relating to arts, or culture or sports
by charitable entities.
Services provided by specified person (a) Legal services provided by advocates (b) Tour operator
services to foreign tourist (c) Services of journalist by way of collecting or providing news (d) Services
by a person by way of conduct of any religious ceremony. Renting of immovable property/ motor
vehicles (a) Services by way of renting of residential dwelling for use as residence (b) Services by a
hotel, inn, guest house having declared tariff of a unit of accommodation below Rs. 1000 per day. (c)
Renting of religious place meant for general public. (d) Services by way of giving on hire (i) to state
transport undertaking. (ii) to goods transport agency.
Services related to Government (a) Services by RBI (b) Services by foreign diplomatic mission (c)
Services by Central Government/ State Government excluding (i) Services by postal department-
Speed post, Parcel post, Life insurance. (ii) Transportation of goods /passenger (iii) Services in
relation to an aircraft or a vessel. (iv) any services provided to business entity.
Normal tax rate composition tax rate Nil Rate of Wholly non-taxable 0% 2% tax exempted supply 5%
5% from tax 12% 1% 18% 28%

Reverse Charge Mechanism (RCM)

Generally, the supplier of goods or services is liable to pay GST. However, in specified cases like
import and other notified supplies the GST liability may be cast on the recipient under the RCM
(Reverse Charge Mechanism). RCM means the liability to pay tax lies on the recipent of supply of
goods or services instead of the supplier of such goods or services.

Section 9(3) of CGST Act and Section 5(3) of IGST Act empower the Government to notify on the
recommendation of the GST Council, specific categories of supply of goods or services, the tax on
which shall be paid on reverse charge basis by the recipient of such supply and all provision of GST
law shall apply to such recipients as if he is the person liable for paying tax in relation to the supply
of such goods or services or both.

Notified Goods under RCM

Description Supplier Recipient
1. Unshelled/ un peeled Agriculturist Any registered
person cashew nuts.
2. Bidi wrapper leaves Do Do (Tendu)
3. Tobacco Leaves Do Do
4. Silk Yarn Any person who Do
manufactures silk yarn from raw silk
5. Used vehicles/ Government Do
old or used goods/ [CG/SG/Local authority]
waste and scrap/seined and
confiscated goods
6. Lottery ticket supply Govt. [SG/ Local authority/ Lottery Distributor
union territory] or selling agent

Notified services under RCM

Description Supplier Recipient
1. GTA services Goods Transport Agency Any of the following taxable
person
Factory
Co-operative Society
Person registered Under GST Law
 Body Corporate, Partnership firm
2. Sponsorship services Any person Any body corporate,
Partnership firm
3. Legal service Advocates or Any business entity
legal firm
4. Service of directors Director of a company Company or
[not employee] Body corporates

5. Services by Insurance An Insurance Insurance agent

agent Company
6. Services by author, Author, artists, Publisher, Music company
Photographer, artist etc. Music Composer producer

Time of Supply of Goods and Services under RCM

The time of supply is the point when the supply is liable to GST. In RCM the recipient is liable to pay
GST. Thus the time of supply for supplies under RCM is different from the supplies which are under
forward charge.