Reverse Charge Mechanism (RCM) Under GST: Complete Guide
When does RCM apply? Section 9(3) list, how to calculate and pay, self-invoice requirements, ITC on RCM, GTA special rules, and common mistakes.
Reviewed by Vikram Mehta
Chartered Accountant · ICAI FRN 142087W
Normally, the supplier collects and pays GST. But under the Reverse Charge Mechanism (RCM), the recipient is liable to pay GST directly to the government. This catches many businesses off guard — especially when paying freelancers, legal fees, transport charges, or buying from unregistered dealers.
This guide explains when RCM applies, how to calculate and pay it, how to claim ITC on RCM paid, and common mistakes that trigger notices.
What is Reverse Charge Mechanism?
Under normal GST, the supplier charges GST on the invoice and pays it to the government. Under RCM, the recipient pays the GST directly. The supplier either charges zero GST (if unregistered) or mentions "Tax payable on reverse charge" on the invoice.
RCM applies under two sections:
- Section 9(3): Specific notified services/goods (e.g., legal services, GTA, directors' fees)
- Section 9(4): Supplies from unregistered persons to registered persons (currently limited to specific categories)
When Does RCM Apply? (Section 9(3) List)
| Service/Good | Supplier | Recipient (who pays RCM) |
|---|---|---|
| Legal services (advocate/firm) | Individual advocate or firm | Any business entity |
| Goods Transport Agency (GTA) | GTA (not paying 12% forward) | Factory, registered society, company, partnership, body corporate |
| Director's sitting fees/commission | Director (individual) | Company |
| Sponsorship services | Any person | Body corporate or partnership |
| Renting of motor vehicle | Non-body corporate (individual cab owner) | Body corporate |
| Security services | Individual/HUF/proprietor | Registered person (body corporate) |
| Insurance agent services | Insurance agent | Insurance company |
| Recovery agent services | Recovery agent | Banking company/NBFC |
How to Calculate and Pay RCM
Step 1: Identify the Applicable Rate
RCM is paid at the same GST rate that would apply on forward charge. For example:
- Legal services: 18%
- GTA services: 5% (no ITC) or 12% (with ITC)
- Director fees: 18%
- Security services: 18%
Step 2: Self-Invoice (if supplier is unregistered)
When paying RCM on purchases from unregistered suppliers, you must issue a self-invoice (invoice to yourself) with all details of the supply. This self-invoice is your document for claiming ITC.
Step 3: Pay RCM in GSTR-3B
Report RCM liability in GSTR-3B Table 3.1(d) — "Inward supplies liable to reverse charge".
Important: RCM must be paid in cash (electronic cash ledger). You cannot use ITC balance to pay RCM liability.
Step 4: Claim ITC on RCM Paid
The good news: you can claim ITC on the RCM paid (in the same GSTR-3B, Table 4(A)(3)). So it's usually cash-flow neutral — you pay RCM in cash, then immediately offset it by claiming ITC in the same return.
RCM must be paid from your electronic cash ledger. You cannot use ITC balance to discharge RCM liability. Using ITC for RCM is invalid and will be reversed with interest.
RCM Reporting in Returns
| Table | What to Report |
|---|---|
| GSTR-3B Table 3.1(d) | Total RCM liability (taxable value + tax) |
| GSTR-3B Table 4(A)(3) | ITC claimed on RCM paid |
| GSTR-3B Table 6.1 | Tax paid — from cash ledger only (for RCM) |
| GSTR-1 (not reported) | RCM is NOT reported in supplier's GSTR-1 |
Never miss an RCM liability
1010 auto-detects reverse charge obligations on legal fees, GTA, director payments, and more — creating self-invoices and computing your RCM liability each month.
Try 1010 FreeCommon Mistakes
- Not paying RCM on legal fees: Every payment to advocates/law firms attracts RCM. Many businesses miss this.
- Trying to pay RCM from ITC: RCM must be paid in cash. Using ITC for RCM payment is invalid and will be reversed.
- Missing director fees RCM: Director sitting fees and commission to non-employee directors attract RCM.
- Not issuing self-invoice: Without a self-invoice, ITC claim on RCM has no supporting document.
- Late payment: RCM must be paid in the period the supply is received. Late payment attracts 18% interest.
GTA Reverse Charge — Special Rules
Goods Transport Agency (GTA) services have a unique structure:
- Option 1 (default): GTA charges 5% GST, recipient pays under RCM (no ITC for GTA)
- Option 2: GTA opts to pay 12% GST on forward charge (GTA claims ITC, recipient pays nothing extra)
- If GTA has opted for 12% forward charge, they issue a declaration and you don't pay RCM
- Check if your GTA has filed the opt-in declaration before assuming RCM applies
Frequently Asked Questions
What is reverse charge mechanism in GST?
RCM is when the recipient (buyer) pays GST directly to the government instead of the supplier collecting it. It applies to specific notified services (Section 9(3)) and certain supplies from unregistered persons (Section 9(4)).
Can I claim ITC on reverse charge GST?
Yes. RCM paid can be claimed as ITC in the same GSTR-3B return (Table 4(A)(3)), provided the supply is used for business and isn't blocked under Section 17(5).
Does RCM apply on all purchases from unregistered dealers?
No. Section 9(4) RCM currently applies only to specific categories (real estate services from unregistered workers). The blanket provision for all unregistered purchases was deferred indefinitely.
How to pay reverse charge GST?
Report in GSTR-3B Table 3.1(d), pay from electronic cash ledger (not ITC). Claim ITC in Table 4(A)(3) of the same return. Issue self-invoice for documentation.
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