Normally the supplier collects and pays GST. Under the Reverse Charge Mechanism (RCM), the liability shifts to the recipient, who pays GST directly to the government. RCM applies to specific notified supplies and certain purchases from unregistered persons.
This guide explains when RCM applies, how to pay it, and how to claim the credit.
What is Reverse Charge Mechanism (RCM) under GST?
RCM ensures tax is collected on supplies where the supplier may be unregistered or hard to tax — such as import of services, goods transport agency services, legal services and certain notified goods.
The recipient self-invoices where needed, pays the GST in cash (not from ITC), and can then claim it as ITC if eligible.
Common RCM supplies
- Import of services
- Goods Transport Agency (GTA) services
- Legal services from advocates
- Director services to a company
- Specified notified goods (e.g. cashew, raw cotton to registered persons)
Step-by-step process
- Identify RCM liability. Check whether the inward supply is notified under RCM.
- Pay in cash. Pay the RCM GST through the cash ledger — it cannot be paid using ITC.
- Report in GSTR-3B. Declare RCM liability in the return.
- Claim ITC if eligible. Claim the RCM tax paid as input tax credit if the supply is used for business.
Frequently asked questions
Can I pay RCM using input tax credit?
No. RCM liability must be paid in cash; the credit can be claimed afterwards if eligible.
Do I need to self-invoice under RCM?
Yes, where the supplier is unregistered you must issue a self-invoice for the RCM supply.