20 multiple-choice questions (MCQs) on Reverse Charge Mechanism (RCM) under GST

The Reverse Charge Mechanism (RCM) is a provision under the Goods and Services Tax (GST) framework in India, which shifts the liability to pay tax from the supplier of goods or services to the recipient. This mechanism is applicable in specific cases as notified by the government. Here’s a detailed explanation of RCM:

Also read 🔍: 20 multiple-choice questions (MCQs) on Goods and Services Tax (GST) 

Definition and Concept

• Reverse Charge Mechanism: Under RCM, the recipient of goods or services is responsible for paying the GST instead of the supplier. This is contrary to the normal charge mechanism where the supplier is liable to pay the tax.
• Legal Basis: The provisions for RCM are outlined in Section 9(3) of the Central Goods and Services Tax (CGST) Act and Section 5(3) of the Integrated Goods and Services Tax (IGST) Act. These sections empower the government to notify specific categories of goods and services for which the tax liability is shifted to the recipient.

Applicability of RCM

• RCM applies to certain specified goods and services, which are notified by the government. The list includes:
  • Goods: For example, unshelled cashew nuts, bidi wrapper leaves, tobacco leaves, silk yarn, used vehicles, and lottery tickets.
  • Services: Services provided by a Goods Transport Agency (GTA), legal services provided by advocates, and services provided by a director of a company, among others.

Notified Goods and Services under RCM

• Goods:
  • Unshelled/unpeeled cashew nuts (supplier: agriculturist, recipient: any registered person).
  • Bidi wrapper leaves, tobacco leaves, and silk yarn (similar supplier-recipient structure).
  • Used vehicles and waste and scrap (supplier: government, recipient: local authority).
• Services:
  • GTA services (supplier: Goods Transport Agency, recipient: taxable persons such as factories, co-operative societies, etc.).
  • Legal services provided by advocates (supplier: advocate, recipient: any business entity).
  • Services by insurance agents and authors (specific conditions apply).

Time of Supply

• The time of supply under RCM is crucial as it determines when the tax becomes payable. The time of supply for RCM is different from the forward charge mechanism. It is generally the earlier of:
  • The date of receipt of goods or services.
  • The date of payment made to the supplier.
  • The date immediately following 30 days from the date of issue of invoice.

Compliance and Payment

• Recipients liable to pay tax under RCM must comply with GST regulations, including:
  • Obtaining GST registration if their aggregate turnover exceeds the threshold limit.
  • Filing GST returns and paying the applicable tax on time.
  • Maintaining proper records of the supplies received under RCM.

Exemptions under RCM

• The government can grant exemptions from tax under RCM in the public interest, as per Section 11 of the CGST Act and Section 6 of the IGST Act. This is done based on recommendations from the GST Council.

Benefits of RCM

• Simplification: RCM simplifies the tax collection process for certain sectors, especially where the supplier may not be registered under GST.
• Compliance: It ensures that the tax is collected from the recipient, who is often more likely to be compliant with tax regulations.
• Revenue Assurance: It helps the government ensure tax revenue from sectors where the supplier may evade tax.

Conclusion

The Reverse Charge Mechanism is a significant aspect of the GST framework that ensures tax compliance and revenue collection from specific goods and services. It places the onus of tax payment on the recipient, thereby streamlining the tax process in certain sectors. Understanding RCM is crucial for businesses and individuals involved in the supply chain to ensure compliance and avoid penalties.

For more specific details on the goods and services covered under RCM, you can refer to the relevant sections of the CGST and IGST Acts, as well as the notifications issued by the government

20 multiple-choice questions (MCQs) related to the Reverse Charge Mechanism (RCM) under GST, 

MCQs on Reverse Charge Mechanism (RCM)

What does RCM stand for in the context of GST?
A) Regular Charge Mechanism
B) Reverse Charge Mechanism
C) Reduced Charge Mechanism
D) Recurrent Charge Mechanism
Answer: B) Reverse Charge Mechanism


Under RCM, who is liable to pay GST?
A) Supplier
B) Recipient
C) Government
D) None of the above
Answer: B) Recipient


Which of the following is NOT a notified service under RCM?
A) Legal services by advocates
B) GTA services
C) Transportation of passengers by air
D) Services by insurance agents
Answer: C) Transportation of passengers by air


Which section of the CGST Act empowers the government to notify supplies for RCM?
A) Section 7
B) Section 9
C) Section 11
D) Section 15
Answer: B) Section 9


What is the time of supply for services under RCM?
A) Date of invoice
B) Date of payment
C) Earlier of receipt of goods/services or payment made
D) Date of registration
Answer: C) Earlier of receipt of goods/services or payment made


Which of the following goods is subject to RCM?
A) Unbranded atta
B) Used vehicles
C) Fresh vegetables
D) Milk
Answer: B) Used vehicles


Who is responsible for paying GST on GTA services under RCM?
A) The GTA
B) The recipient of the service
C) The government
D) The supplier
Answer: B) The recipient of the service


Which of the following is a benefit of RCM?
A) Increased tax evasion
B) Simplified tax collection
C) Higher tax rates
D) Reduced compliance burden for suppliers
Answer: B) Simplified tax collection


Which of the following is NOT a condition for RCM to apply?
A) The supplier is unregistered
B) The recipient is a registered person
C) The goods are imported
D) The supplier is a government entity
Answer: D) The supplier is a government entity


What is the GST rate applicable under RCM for legal services?
A) 5%
B) 12%
C) 18%
D) 28%
Answer: C) 18%


Which of the following services is exempt from RCM?
A) Services by a director of a company
B) Services provided by a veterinary clinic
C) Services provided by a Goods Transport Agency
D) Services provided by an artist in a performance
Answer: B) Services provided by a veterinary clinic


What is the role of the GST Council in relation to RCM?
A) To collect taxes
B) To recommend exemptions and notify supplies
C) To enforce penalties
D) To audit businesses
Answer: B) To recommend exemptions and notify supplies


Which of the following is a notified good under RCM?
A) Fresh fruits
B) Silk yarn
C) Packaged food
D) Household items
Answer: B) Silk yarn


In which scenario would RCM NOT apply?
A) When the supplier is registered
B) When the recipient is unregistered
C) When the service is provided by a government entity
D) When the goods are imported
Answer: A) When the supplier is registered


What is the primary purpose of implementing RCM?
A) To increase tax rates
B) To ensure tax compliance and revenue collection
C) To reduce the number of registered taxpayers
D) To simplify the tax structure
Answer: B) To ensure tax compliance and revenue collection


Which of the following is a condition for a service to be subject to RCM?
A) The service must be provided by a registered supplier
B) The service must be provided to a government entity
C) The service must be provided to a taxable person
D) The service must be provided for free
Answer: C) The service must be provided to a taxable person


What is the GST rate applicable for GTA services under RCM?
A) 5%
B) 12%
C) 18%
D) 28%
Answer: A) 5%


Which of the following statements is true regarding RCM?
A) Only registered suppliers can charge GST.
B) RCM applies to all goods and services.
C) The recipient must comply with GST regulations.
D) RCM is optional for the recipient.
Answer: C) The recipient must comply with GST regulations.


Which of the following is a service that falls under RCM?
A) Admission to a cinema
B) Services provided by a tour operator to a foreign tourist
C) Services provided by a local restaurant
D) Services provided by a grocery store
Answer: B) Services provided by a tour operator to a foreign tourist


What is the consequence of failing to comply with RCM provisions?
A) No penalties apply
B) The supplier is liable for tax
C) The recipient may face penalties and interest
D) The government will refund the tax
Answer: C) The recipient may face penalties and interest