GST Reverse Charge Mechanism (RCM): Key Services Under Scanner as May 2025 Update Expands Scope

The Tamil Nadu GST Practitioners Association (TNGSTPA) has issued a crucial advisory for business owners and finance professionals regarding the Reverse Charge Mechanism (RCM) under the Goods and Services Tax (GST) regime. With the May 2025 update bringing in expanded applicability of RCM, businesses are being urged to proactively monitor transactions that fall under this category to avoid compliance errors and penalties.

Key Services Covered Under RCM

According to the advisory, the following services attract RCM liability:

Advocate Services: Business entities must pay 18% GST under RCM.
Goods Transport Agency (GTA) Services: Attract a 5% RCM liability.
Sponsorship Services: When received by companies or partnership firms, an 18% RCM is applicable.
Director’s Fees: Professional fees paid to directors attract 18% RCM.
Security Services: If availed from unregistered agencies, RCM applies.
Used Vehicle / Scrap Purchase: Subject to 18% GST under RCM.
Construction Sector: Builders or promoters purchasing cement or capital goods from unregistered suppliers face a 28% GST under RCM.

The advisory also reminds that RCM GST must be paid in cash only, and Input Tax Credit (ITC) can only be claimed thereafter.

Common Pitfalls to Avoid

The TNGSTPA has highlighted frequent compliance errors:

Failing to report RCM liabilities in GSTR-3B.
Incorrectly paying GST under the wrong tax head.
Overlooking applicable RCM services.

May 2025 Update: New Additions Under RCM

The recent amendment effective May 2025 has widened the RCM net to include:

DSA Services: Direct Selling Agent services provided to NBFCs and banks are now under RCM.
Sponsorship: Now explicitly limited to body corporates and partnership firms for RCM liability.
Scrap Purchases: Even purchases from unregistered dealers are RCM applicable.

Compliance Suggestion

To aid compliance, the advisory recommends businesses maintain a monthly checklist to track RCM applicability and reporting accuracy.

With growing scrutiny from tax authorities, staying up-to-date with RCM rules has become essential for businesses of all sizes. Industry experts caution that non-compliance can lead to denial of ITC, interest liabilities, and even penalties under the GST law.