Normal Charge Mechanism in GST
the supplier of goods or services is liable to pay the GST to the government. The supplier collects the GST from the recipient of the goods or services and deposits it to the government. For example, when you buy a product from a registered dealer, the dealer will collect GST from you and deposit it to the government.
Reverse Charge Mechanism (RCM)
the liability to pay GST shifts from the supplier to the recipient of goods or services. The recipient of the goods or services has to pay the GST directly to the government instead of the supplier. For example, when you avail the services of an unregistered supplier, you will be liable to pay the GST on the services received directly to the government under RCM.
Let’s take an example to understand this better:
Suppose a registered dealer X sells goods worth Rs. 50,000 to an unregistered dealer Y. Under the normal charge mechanism, dealer X will charge GST at the applicable rate (let’s assume 18%) and collect Rs. 9,000 as GST from dealer Y. Dealer X will then deposit this Rs. 9,000 to the government.
Now, let’s assume the same scenario under the RCM. Since dealer Y is unregistered, the liability to pay GST shifts to dealer X. So, dealer X will have to self-invoice for the supplies made to dealer Y and pay the applicable GST of Rs. 9,000 to the government.
Similarly, let’s consider another scenario where a registered dealer X avails the services of an unregistered service provider Y for Rs. 20,000. Under the RCM, dealer X will have to pay the applicable GST on this Rs. 20,000 directly to the government instead of the service provider Y. The applicable GST rate will depend on the type of service availed by dealer X.
Thus, the main difference between normal charge and RCM is the liability to pay the GST, which shifts from the supplier to the recipient under RCM.
