By Sunil Singh
M. V. Damania and Co.
Chartered Accountants
01st February,2013
Introduction of Reverse Charge
Mechanism (RCM)
What do you mean by
RCM
?
Applicability
Notification No. 30/2012- ST dated 20/06/2012
Categories covered

Services under full reverse charge mechanism (RCM)
Services
under partial reverse charge mechanism (RCM)
List of services under full Reverse Charge
Mechanism
Sr
No.
Nature of services
Description of services
1)
Insurance Agents services
Services provided or
agreed to be provided by
an insurance agent to
any person carrying on
insurance business
2)
Goods Transport agency services
(GTA)
Services provided by GTA
in relation to
transportation of goods
by road
3)
Sponsorship Services
Sponsorship services to
any Bode corporate or
Partnership firm located
in taxable territory
continued
Sr No. Nature of services
Description of services
4)
Legal services by Individual advocate or
a firm of advocates including arbitral
services to business entity with turnover
exceeding Rs.10 lakhs in the preceding
Legal Services
year
5)
Government
services
Support services by Government or local
authority (excluding renting of
immovable property)
6)
Director Services
Services provided or agreed to be
provided by a Director of a company to a
said company
continued
Sr
Nature of services
No.
Description of services
7)
Any taxable service where the Service
provider is located in a non taxable
territory and service recipient located in
Provision of Taxable
service from nontaxable territory
a taxable territory
Goods Transport Agency Services
Provided or agreed to be provided by a goods transport
agency in respect of transportation of goods by road, where
the person liable to pay freight is,—
 Any factory registered under or governed by the Factories
Act, 1948 (63 of 1948);
 Any society registered under the Societies Registration Act,
1860 (21 of 1860) or under any other law for the time being
in force in any part of India;
 Any co-operative society established by or under any law;
 Any dealer of excisable goods, who is registered under the
Central Excise Act, 1944 (1 of 1944)
 Any body corporate established, by or under any law; or
 Any partnership firm whether registered or not under any
law including association of persons;
Relevant aspects relating to the above are briefed
here as below :





Transportation of fruits, vegetables, eggs or milk by road in
a goods carriage is exempt from Service Tax. (Refer point
no. 21 of notification no. 25/2012).
No Service Tax is to be paid when Gross Amount charged
on all consignments transported in a goods carriage does
not exceed Rs. 1500/-.
No Service Tax is to be paid when Gross Amount charged
on individual consignment transported in a goods carriage
does not exceed Rs. 750/Taxable value of Goods Transport Agency Service shall be
exempt in excess of 25%. In other words, abatement of
75% is available.
Services tax paid on service provided for transport of goods
from inland container depot to the port of export can be
claimed as refund.
Goods Transport Agency
• 75% Abatement on the Service Amount say On Rs
100
Taxability • Taxable Amount Rs.25
Liability
POP
• Recipient Liable to discharge ST
• Any person who pays freight either himself/Agent
• POP of services of GTA shall be the Location of Person
liable to pay tax.
• Provided that when the person is located in NTT , the
provider shall be liable to pay ST
Illustrations
XYZ Factory
Gurgaon
XYZ
Factory
Haryana
gurgaon
Liable
to pay
Haryana
freight
ABC Transport
Registered
Dealer
a
Registered
partnership
firm
Dealer a
in
Bhopal in M.P
partnership
firm in
Jammu Non
Taxable
Territory
liable to pay
freight
Delhi
Back
Legal Services
Legal services provided by advocates or partnership firms
of advocates are exempt from service tax when provided
to the following:

An advocate or partnership firm of advocates
providing legal services.

any person other than a business entity.

a business entity with a turnover up to rupees
ten lakh in the preceding financial year.
However, in respect of services provided to business
entities, with a turnover exceeding rupees ten lakh in the
preceding financial year, tax is required to be paid on
reverse charge by the business entities.
Back
Non
Taxable Territory
ABC
A Service
provider
Taxable Territory
Providing Taxable service to
DEF
A Service
Receiver
Providing taxable service to
PQR
A Service
receiver
Providing taxable services to
XYZ
A Service
Provider
Partial Reverse Charge Mechanism
?
List of services under partial reverse charge
mechanism
Sr.No
Nature of
services
Description of
services
% of Ser
tax payable
by S.P.
% of Ser
Tax
payable
by S.R.
1)
Manpower
Supply
Supply of manpower
for any purpose
including security
services provided to
25%
75%
Nil
60%
100%
40%
Service
company
2)
Rent a cab
services
Renting of Passenger
vehicles
 With abatement
 Without abatement
Continued
Sr.No Nature of
services
Description of services
3)
Works Contract service 50%
Works
Contract
Service
provided to company
% of Ser
% of Ser
tax payable Tax payable
by S.P.
by S.R.
50%
Basic Condition in Partial RCM
Service Provider
 Individual
 HUF
 Partnership Firm
 AOP
Service Receiver
 Business entity
registered as body
corporate
 He should be located
in taxable territory
Back
Rent a Cab Services
Renting of Motor
Vehicle
If abatement
Of 60% claimed
S.R. is Liable to
pay @ 4.944%
S.P. is not Liable
Pay any tax
If abatement
is not claimed
S.R. is Liable to
pay @ 4.944%
S.P. is Liable to
pay @ 7.416 %
WORKS CONTRACT
ST to be discharge by the Recipient under
Reverse Charge will be 50% of the
Taxable Liability
Original
Works
i.e.
New
Construction, all types of
addition & alteration and
erection, commissioning or
installation of PM/Equipment
etc
Taxable Amount = 40%
of the Total Amount
Charged
ST =
(40*12.36%)*50%
= 2.472
Maintenance or repairs
or
reconditioning
or
restoration or servicing of
goods eg. Amc
Maintenance,
repairs,
completion
&
finishing
service such as glazing,
plastering, floor and wall
tiling etc.
eg. Interior
Decoration
Taxable Amount
= 70% of the
Total Amount
Charged
ST =
(70*12.36%)*50%
= 4.326
Taxable Amount
= 60% of the
Total Amount
Charged
ST =
(60*12.36%)*50%
= 3.708
Details in Invoice under RCM



Governing Rule: Rule 4A of the Service Tax Rules 1994.
Invoice shall indicate the name, address and the
registration number of the service provider and person
receiving taxable service; the description and value of
taxable service provided or agreed to be provided; and the
service tax payable thereon.
As per clause (iv) of sub-rule (1) of the said rule 4A "the
service tax payable” thereon' has to be indicated. The
service tax payable would include service tax payable by
the service provider.
Case 1
Where Service Tax has been charged fully in Invoice
Expense A/c
Dr
Service Tax Input Credit A/c
Dr
Service Tax Deferred Input A/c
Dr
To Vendor A/c
To TDS Payable A/c
To Service Tax Payable A/c - Reverse Charge
Case 2
Where Service Tax has not been charged in Invoice
Expense A/c
Dr
Service Tax Deferred Input A/c
Dr
To Vendor A/c
To TDS Payable A/c
To Service Tax Payable A/c - Reverse Charge
Debit
100.00
7.42
4.94
112.36
100.00
12.36
112.36
Credit
105.42
2.00
4.94
112.36
97.75
2.25
12.36
112.36
Case 3
In case of Abatement ( e.g. 40%)
Expense A/c
Dr
Service Tax Input Credit A/c
Dr
To Vendor A/c
To TDS Payable A/c
To Service Tax Payable A/c - Reverse Charge
Debit
100.00
4.94
104.94
Credit
98.00
2.00
4.94
104.94
Important Points relating to RCM




Cenvat can not be availed for discharging the ST
Liabilities on RCM
ST Paid under RCM can be utilize towards the
discharge ST on output services
Threshold exemption of upto Rs.10 Lac is not
applicable here in RCM except Legal services
Allowed Refund of unutilized cenvat credit availed
from input services as per Rule 5B of Central Exice
Rules,2004
Thank
You