Reverse Charge Mechanism (RCM) Explained

Under normal GST rules, the supplier charges GST on an invoice and is responsible for paying it to the government — this is "forward charge." The Reverse Charge Mechanism (RCM) flips that responsibility: the recipient of the goods or services pays the GST directly to the government, instead of paying it to the supplier as part of the invoice.

Why RCM exists

RCM is typically applied in scenarios where it's administratively simpler or safer for tax collection to hold the (usually larger, more compliant) buyer responsible rather than the supplier — common with unregistered suppliers, certain imported services, or specific notified categories of goods and services where the government wants tighter control over collection.

Common scenarios where RCM applies

• Supply from an unregistered person to a registered person, in specific notified categories.
• Import of services — the Indian recipient pays GST under RCM on services received from a foreign supplier, since the foreign supplier isn't registered under Indian GST.
• Specific notified goods and services — a list maintained by notification, covering categories like certain agricultural produce, goods transport agency services (in some arrangements), and legal services from an advocate to a business.
• Services from a director to their own company, in certain arrangements.

How it works in practice

The recipient self-invoices (in cases involving an unregistered supplier), calculates the GST that would have applied, and pays it directly through their own GSTR-3B — separately from their regular output tax liability. Importantly, RCM tax must be paid in cash; it cannot be settled using existing Input Tax Credit balance. However, once paid, that same amount can typically be claimed back as ITC in the same or a later period, if the recipient is otherwise eligible.

Why this trips people up

The most common mistake is simply not recognising that a transaction falls under RCM at all — a business receiving a legal services invoice from an advocate, for example, may not realise they, not the advocate, owe the GST on it. Since the invoice itself often won't show GST charged (the supplier isn't collecting it), it's easy to miss unless someone specifically checks the transaction against the RCM-notified list.

Key takeaways

• Under RCM, the buyer — not the seller — pays GST directly to the government.
• It applies to specific notified categories, including several types of unregistered-supplier transactions and imported services.
• RCM liability must be paid in cash, though it can usually be claimed back as ITC afterward if eligible.