The Normal Charge and Reverse Charge Mechanism (RCM) in GST are two methods of paying Goods and Services Tax in India. Normally, the supplier collects and pays GST. But under RCM, the responsibility shifts to the recipient of goods or services. Businesses must clearly understand both systems to stay compliant and avoid penalties.
What is Normal Charge in GST?
Under the Normal Charge mechanism in GST, the seller of goods or services is responsible for charging GST from the buyer and depositing it with the government. This is the most common system and applies to most transactions.
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The supplier collects GST on the invoice.
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The buyer pays GST along with the product or service price.
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The supplier files GST returns and deposits the tax.
👉 Example: A manufacturer sells machinery worth ₹1,00,000. He adds 18% GST (₹18,000). The buyer pays ₹1,18,000, and the seller deposits ₹18,000 as GST.
What is Reverse Charge Mechanism (RCM) in GST?
The Reverse Charge Mechanism (RCM) in GST shifts the tax liability to the buyer. Instead of the supplier charging GST, the recipient must pay it directly to the government.
RCM applies in specific cases such as:
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Import of services from outside India.
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Legal services from advocates.
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Transport services from GTA (Goods Transport Agencies).
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Certain notified goods like tobacco leaves, silk yarn, cashew nuts.
👉 Example: A company avails legal services worth ₹50,000 from a lawyer. The lawyer does not charge GST. Instead, the company pays GST directly under RCM.
Difference Between Normal Charge and RCM in GST
| Basis | Normal Charge Mechanism | Reverse Charge Mechanism (RCM) |
|---|---|---|
| Who pays GST? | Supplier | Recipient |
| Collection | Supplier collects from buyer | Recipient pays directly |
| ITC Claim | Buyer claims ITC on GST charged by supplier | Buyer can claim ITC after paying GST under RCM |
| Applicability | General rule for most supplies | Notified goods/services and specific cases |
This comparison makes it easier to understand Normal Charge and Reverse Charge Mechanism (RCM) in GST.
Compliance Requirements for Businesses
Every taxpayer should carefully follow compliance rules for Normal Charge and Reverse Charge Mechanism (RCM) in GST:
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Issue proper tax invoice (Normal Charge) or self-invoice (RCM).
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Pay GST on time.
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Report transactions in GSTR-1 and GSTR-3B.
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Claim Input Tax Credit (ITC) wherever eligible.
Failure to comply can attract penalties and interest.
Why Understanding Both Mechanisms Matters
Knowing Normal Charge and Reverse Charge Mechanism (RCM) in GST helps businesses:
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Avoid double taxation or missed payments.
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Ensure smooth ITC claims.
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Stay updated with government notifications.
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Maintain transparency in transactions.
Conclusion
The Normal Charge and Reverse Charge Mechanism (RCM) in GST are two sides of tax liability. While the normal charge keeps responsibility with the supplier, RCM shifts it to the buyer in notified cases. Businesses must identify which mechanism applies and comply with GST rules accordingly.
👉 Need help managing GST returns, ITC, or RCM compliance? Contact HelpTax.in for professional guidance.