Understanding GST: Forward Charge vs. Reverse Charge Mechanism

GST Liability Allocation:

• Forward Charge Mechanism (FCM): Under FCM, the responsibility to collect and remit GST lies with the supplier. This is the standard method where the supplier charges GST on invoices and remits this to the government.
• Reverse Charge Mechanism (RCM): Under RCM, the responsibility shifts from the supplier to the recipient of the goods or services. This mechanism is triggered under specific scenarios mandated by the GST law.

Detailed Comparison Table:

Characteristic	Forward Charge Mechanism (FCM)	Reverse Charge Mechanism (RCM)
Tax Liability	Responsibility lies with the supplier.	Responsibility shifts to the recipient.
GST Invoice Charging	GST is charged and shown on the invoice.	GST is not charged on the invoice; recipient accounts for it.
Input Tax Credit (ITC)	Supplier can claim ITC on inputs.	Recipient can claim ITC on the GST paid under RCM.
Registration Requirement	Mandatory for suppliers crossing the threshold limit.	Mandatory for recipients if dealing under RCM, irrespective of their turnover.
Usual Application	Applies universally under standard GST transactions.	Applied specifically to cases mandated by law.

RCM in E-commerce: Application and Impact

E-commerce operators like Ola, Uber, Airbnb, and Urban Company are subjected to RCM for certain services where they facilitate services between unregistered service providers and consumers. This ensures tax compliance and minimizes evasion.

RCM E-commerce Table:

Sector	Service	E-commerce Operator	RCM Applicability
Transportation Services	Ride-sharing	Ola, Uber, Rapido	E-commerce operator pays GST on behalf of drivers.
Accommodation Services	Hotel/Room Booking	Airbnb, Oyo, Make My Trip	Platform handles GST for unregistered hosts.
Housekeeping Services	Cleaning, Repairs	Urban Company	Platform responsible for GST on individual services.

List of Goods and Services under RCM

Goods:

Sr No.	Supply of Goods	Supplier of Goods	Recipient of Goods
1	Cashew Nuts	Agriculturist	Any registered person
2	Bidi Leaves	Agriculturist	Any registered person
3	Tobacco Leaves	Agriculturist	Any registered person
4	Silk Yarn	Individuals/entities involved in production	Any registered person
4A	Raw Cotton	Agriculturist	Any registered person
5	Lottery	State Government/UT/Local authority	Lottery distributor/agent
6	Used Vehicles, etc.	Central/State Government/UT/Local authority	Any registered person

Services:

Sr. No.	Services Description	Supplier	Recipient
1	Services by non-resident	Individual/entity outside taxable territory	Domestic business
2	Transport of goods by road	Goods Transport Agency	Registered business entities
3	Legal services by an advocate	Individual advocate or firm	Any business entity
4	Arbitration services	Arbitral tribunal	Any business entity
5	Sponsorship services	Any sponsor	Body-corporate or partnership firm
6	Select government services	Government or local authority	Business entities excluding specific exempt services
7	Director services	Director of a company/body corporate	The company or body corporate
8	Insurance agent services	Insurance agent	Entities engaged in insurance business
9	Recovery agent services	Recovery agent	Banking/financial institutions
10	International transport of goods	Person outside taxable territory	Customs station in India
11	Intellectual property rights	Copyright holder (Author, etc.)	Publisher, music company, producer
12	E-commerce transport services	Taxi driver or Rent-a-cab operator	Platform users (via e-commerce operator)
13	RBI Overseeing Committee services	Members of the Overseeing Committee	Reserve Bank of India

Conclusion: Strategic Importance of RCM

The Reverse Charge Mechanism ensures compliance, broadens the tax base, and counters evasion. It demands adaptability in accounting systems and business operations to manage cash flows effectively. A comprehensive understanding of RCM fosters compliance and enhances the transparency of the GST framework, ensuring a smooth taxation process for all stakeholders involved.