The GST Council has introduced significant amendments to the Reverse Charge Mechanism (RCM) under Notification No. 13/2017 of Central Tax (Rate), impacting two key entries: Entry No. 5AB and Entry No. 4. These changes, effective from 16 January 2025 through Notification No. 07/2025, are aimed at refining tax compliance and streamlining the scope of reverse charge applicability. The amendments specifically address the categories of services related to the renting of properties other than residential dwellings and sponsorship services, redefining the recipient of services liable under RCM. This article provides a detailed analysis of these updates and their implications
RCM on Rent: Change in Entry No. 5AB of RCM Notification no.13/2017 of Central Tax Rate
| Sl. No. (1) | Category of Supply of Services (2) | Supplier of Service (3) | Recipient of Service (4) |
|---|---|---|---|
| 5AB (Earlier) (Till 15 Jan 2025) NN 09/2024 | Service by way of renting of any property other than residential dwelling. | Any unregistered person | Any registered person. |
| 5AB (Now) (From 16 Jan 2025) NN 07/2025 | Service by way of renting of any property other than residential dwelling. | Any unregistered person | Any registered person other than a person who has opted to pay tax under composition levy. |
RCM on Sponsorship Services : Change in Entry No. 4 of RCM Notification no.13/2017 of Central Tax Rate
| Sl. No. (1) | Category of Supply of Services (2) | Supplier of Service (3) | Recipient of Service (4) |
|---|---|---|---|
| Earlier (Till 15 Jan 2025) | Services provided by way of sponsorship to any body corporate or partnership firm | Any person | Any body corporate or partnership firm located in the taxable territory. |
| Now (From 16 Jan 2025) NN 07/2025 | Services provided by way of sponsorship to any body corporate or partnership firm | Any person other than a body corporate | Any body corporate or partnership firm located in the taxable territory. |
Example 1
Supplier:Â CA Guruji Events (A business entity – Providing the sponsorship services)
Recipient: Company B (The body corporate – Receiving the sponsorship services)
• Company B, enters into a sponsorship agreement with CA Guruji Events, for promoting its products during an event. The consideration for this sponsorship service is Rs.1,00,000. And the applicable GST rate is 18%.
• Here, this transaction attracts the Reverse Charge Mechanism of GST as Company B being the Recipient of Sponsorship services is a Body Corporate.
• Company B, being the recipient of the sponsorship services, is required to pay the GST on behalf of the supplier, CA Guruji Events (business entity).The GST amount to be paid by Company B would be Rs.1,00,000*18% = Rs.18,000.
• Company B will then self-invoice this transaction and pay the GST to the government.
• So, in this example, Company B, as the recipient, bears the responsibility of paying the GST to the government under the reverse charge mechanism for the sponsorship services received from Company B, Individual or the business entity.
Example 2
Supplier:Â CA Guruji Events Pvt. Ltd. (A Body Corporate – Providing the sponsorship services)
Recipient:Â Company B (The body corporate – Receiving the sponsorship services)
Company B, enters into a sponsorship agreement with CA Guruji Events Pvt. Ltd., for promoting its products during an event. The consideration for this sponsorship service is Rs.1,00,000. And the applicable GST rate is 18%.
CA Guruji Events Pvt. Ltd. being the supplier of the sponsorship services, is required to collect the GST from Company B and pay to the Government under Forward Charge Mechanism.
Watch below video to know the other Recent Changes from 16 January 2025:
In conclusion, the recent changes in Entry No. 5AB and Entry No. 4 of the RCM Notification signify the government’s focus on enhancing the precision of tax applicability. By introducing exclusions for persons under the composition levy and corporate service providers, these amendments aim to ensure a fair and balanced tax regime. Businesses and taxpayers must carefully review their transactions and compliance frameworks to adapt to these modifications, effective from 16 January 2025. Staying informed and implementing necessary changes will be crucial to mitigating any potential liabilities arising under the revised provisions of RCM.
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