Mandatory GST Registration Due to RCM

[Tushar Malik]

Mandatory GST Registration Due to RCM

Reverse charge is a mechanism where the recipient of goods or services is responsible for paying Goods and Services Tax (GST) instead of the supplier.

1. When a Person is Liable to Pay GST Under RCM

As per Section 24 of the CGST Act, 2017, any individual or entity liable to pay tax under RCM must obtain GST registration, regardless of their turnover threshold. This implies that even if the recipient’s annual turnover is below the prescribed limit (Rs. 40 lakh for goods and Rs. 20 lakh for services in most states), GST registration is still mandatory.

2. Specific Cases Where RCM Applies

RCM is applicable in various circumstances, including:

• Goods and Services Notified Under Section 9(3), 9(4), and 9(5) of the CGST Act and Section 5(3), 5(4), and 5(5) of the IGST Act: Certain specified goods and services (e.g., legal services provided by an advocate, services rendered by a director to a company, rent paid for non-residential purposes except for composition dealers, etc.) attract RCM.
• Casual Taxable Persons & E-Commerce Operators: Any entity involved in facilitating taxable supplies through an e-commerce platform is required to register under GST.

3. Import of Services

Even if a business imports services and is otherwise unregistered, they must obtain GST registration and discharge tax liability under RCM.

4. Time of Supply in Case of Services

In the case of reverse charge, the time of supply is determined by the earliest of the following events:

• The date of payment
• The date of invoice issuance by the recipient
• If the recipient issues an invoice after the supply has occurred and pays tax accordingly, interest will be applicable on the delayed payment. Additionally, if there is a delay in issuing the invoice, the recipient may be subject to penal action under Section 122 of the CGST Act.
• The recipient cannot use Input Tax Credit (ITC) to offset GST on goods or services under reverse charge and must make the payment in cash.

Self-invoicing is required when supply received from unregistered supplier, and such transactions fall under reverse charge. Since the supplier cannot issue a GST-compliant invoice, the recipient is responsible for tax payment. Therefore, self-invoicing becomes a necessary compliance measure.

Consequences of Non-Compliance

Failure to register under GST and comply with RCM obligations can lead to penalties, interest on unpaid tax, and legal consequences under GST law. Businesses must assess their tax liabilities and register as required to avoid legal and financial risks.

Conclusion

GST registration is mandatory for anyone liable to pay tax under RCM, even if their turnover is below the threshold. Businesses receiving supplies subject to RCM should ensure timely registration and compliance to avoid penalties and maintain smooth operations.