Top 10 Services under Reverse Charge Mechanism in GST You Should Know

India's Goods and Services Tax (GST) system has simplified indirect taxation, but one of its unique provisions — the Reverse Charge Mechanism under GST — can still be confusing for many taxpayers. Unlike the normal GST process where the supplier collects and pays tax, under reverse charge, the liability to pay tax shifts to the recipient of the goods or services.

This provision plays a critical role in ensuring compliance and plugging tax leakages, especially in cases involving unregistered suppliers or high-risk sectors. In this article, we will explore the top 10 services covered under the Reverse Charge Mechanism under GST, which every business owner and professional should be aware of.

We’ll also briefly touch on GST on restaurant services and how reverse charge may or may not apply there.

What is Reverse Charge Mechanism under GST?

The Reverse Charge Mechanism under GST is a provision where the recipient of goods or services is liable to pay GST instead of the supplier. This rule is especially applicable when:

• A registered person purchases goods or services from an unregistered dealer.
• Certain categories of goods or services are notified by the government for reverse charge.
• Services are provided by an e-commerce operator or through intermediaries.

Why Does Reverse Charge Mechanism Exist?

The Reverse Charge Mechanism under GST ensures:

• Better tax compliance by covering unregistered suppliers.
• More transparency in transactions involving cash payments or services from the informal sector.
• Prevention of tax evasion in high-risk industries.

Now, let’s look at the top 10 services that come under this mechanism.

Top 10 Services under Reverse Charge Mechanism under GST

1. Goods Transport Agency (GTA) Services

One of the most commonly known services under reverse charge. If a GTA provides transport services to registered businesses, the recipient is liable to pay GST under RCM.

Rate of GST: 5% (No ITC) or 12% (With ITC – in forward charge)

2. Legal Services from Advocates

Services provided by an individual advocate or a firm of advocates to a business entity are covered under the Reverse Charge Mechanism under GST.

Recipient's Responsibility: The business entity must pay GST under reverse charge.

3. Services by Government to Business Entities

When government departments provide services (excluding renting of immovable property or specific services) to business entities, RCM applies.

Example: Licensing services, audit certifications, or inspection charges.

4. Security Services (excluding govt. entities)

Security services provided by non-governmental security agencies to registered persons (except body corporates paying under forward charge) fall under RCM.

Applicable when services are received from non-body corporates or partnership firms.

5. Services by a Director to the Company

If a director provides services to a company (e.g., consultancy, appearance, or board participation), the company is required to pay GST under reverse charge.

This prevents directors from evading tax compliance responsibilities.

6. Services Supplied by an Insurance Agent

An insurance agent offering services to any insurance company must follow the Reverse Charge Mechanism under GST. The insurance company (recipient) pays GST directly to the government.

7. Services by a Recovery Agent

Recovery agents engaged by banks or financial institutions are under RCM. The financial institution or bank must pay the GST on services received.

This applies across both public and private sector banks.

8. Import of Services

Any imported service used for business purposes (such as consulting, software, or legal services) is automatically covered under reverse charge, regardless of the status of the supplier.

This is particularly crucial for Indian startups and IT companies.

9. Renting of Motor Vehicle

If a non-body corporate rents out a motor vehicle to a registered person, the recipient is required to pay GST under RCM, especially if the cost of fuel is included in the rental.

Rate of GST: 5% under RCM if the service provider does not charge GST.

10. Services via E-Commerce Operators

Certain services provided through e-commerce platforms — like cleaning, plumbing, driving — are subject to reverse charge where the e-commerce operator must pay GST.

Example: Swiggy, Zomato, UrbanClap (now Urban Company), etc.

What About GST on Restaurant Services?

Now, let’s discuss GST on restaurant services and whether RCM applies.

GST on Restaurant Services:

• Restaurants generally charge 5% GST on food bills if they don’t claim ITC.
• If they are located inside a hotel with room tariffs above ₹7,500, GST is 18% (with ITC).
• Cloud kitchens or delivery partners like Zomato and Swiggy are now required to collect and pay GST on restaurant services offered through their platform.

Does Reverse Charge Apply?

As per the current GST rules, restaurant services do not come under the Reverse Charge Mechanism under GST. However, food delivery platforms like Swiggy or Zomato are responsible for collecting and paying the tax on behalf of the restaurant.

So while GST on restaurant services is applied normally in most cases, there is a quasi-reverse charge element when it comes to online platforms.

Input Tax Credit (ITC) and Reverse Charge

• Businesses can claim ITC on taxes paid under reverse charge only if the services are used for business purposes.
• The payment of GST under RCM must be done in cash, not through the ITC balance.

Compliance Requirements

If you're liable to pay tax under the Reverse Charge Mechanism under GST, you must:

• Report the details in GSTR-3B and GSTR-1 (as applicable).
• Maintain proper records and invoices.
• Make the payment within due timelines to avoid penalties.

Conclusion

Understanding the Reverse Charge Mechanism under GST is vital for businesses that deal with professional services, logistics, rentals, or government transactions. The 10 services listed above are among the most important categories where reverse charge applies.

While GST on restaurant services typically does not involve reverse charge, businesses involved in the food delivery ecosystem may have unique compliance requirements. Always consult a GST professional or tax advisor to ensure proper understanding and implementation of GST provisions in your business.