The Reverse Charge Mechanism (RCM) under GST has always been a critical compliance area, requiring businesses to stay updated on frequent changes. In May 2025, the GST Council introduced key modifications to RCM provisions, impacting tax liabilities, compliance burdens, and input tax credit (ITC) claims.
Key RCM Modifications in May 2025
1. Expanded List of Goods & Services Under RCM
The GST Council has expanded the scope of RCM to include new categories:
- Freelancers & gig workers – Certain professional services may now attract RCM if the supplier is unregistered.
- E-commerce operator commissions – Platforms like Amazon, Flipkart, and ONDC may fall under RCM for seller commissions.
- Imported services – Stricter enforcement for services procured from overseas suppliers.
Impact: Businesses must verify vendor GST registration status before making payments to avoid unexpected tax liabilities.
2. Relaxations for Small Businesses & MSME
To ease compliance burdens, the government has introduced:
- Higher threshold exemption – Small businesses (turnover below ₹50 lakh) may be exempt from RCM on specific services.
- Simplified reporting – Fewer disclosures required in GSTR-3B for MSMEs under RCM.
Impact: Reduced compliance hassles for small taxpayers, but larger firms must maintain stricter documentation.
3. Stricter ITC Matching for RCM Transactions
- Auto-population of RCM liabilities in GSTR-3B from vendor filings (GSTR-1).
- Blocked ITC if the supplier fails to report invoices in their returns.
Impact: Businesses must reconcile purchase records with vendor filings to avoid losing ITC.
4. Changes in RCM for Specific Sectors
- Construction & Real Estate – RCM may apply to subcontractor payments if the contractor is unregistered.
- Logistics & Transport – Services from unregistered truck operators could attract RCM.
- Legal & Consultancy Services – New clarifications on RCM applicability for overseas legal advice.
Impact: Sector-specific businesses must review contracts and vendor registrations.
5. Penalty & Interest for Non-Compliance
- Higher penalties for incorrect RCM reporting (up to 200% of tax due in fraud cases).
- Interest on delayed payments now calculated from the invoice date, not the next return due date.
Impact: Businesses must ensure timely RCM payments to avoid heavy penalties.
Key Action Points for Businesses
- Verify vendor GST registrationbefore making payments.
- Maintain detailed records of RCM-paid invoices for ITC claims.
- Reconcile GSTR-2B with purchase data to avoid mismatches.
- Update accounting software to auto-calculate RCM liabilities.
Final Thoughts
The May 2025 RCM updates emphasize stricter compliance but also provide relief for small businesses. Companies must proactively adapt their procurement and accounting processes to avoid penalties and maximize ITC benefits.