Reverse Charge Mechanism (RCM) — Practical Guide
Under RCM, the recipient pays GST instead of the supplier. Applies to specified services/goods and certain cross-border supplies.
When does RCM apply?
- GTA services (conditions-based)
- Legal services by advocate/firm
- Sponsorship services
- Director services to company
- Rent-a-cab, security, housekeeping (via body corporate) — when notified
- Cashew, bidi wrapper leaves, silk yarn (from agriculturist)
- Supply of lottery, etc. (as notified)
- Recipient in India liable under RCM
- Place of supply rules apply
- Intra-state supply by unregistered to registered can attract RCM only when specifically notified (general 9(4) levy is limited by notifications)
How to comply
Identify and mark RCM bills
Ensure purchase register flags RCM nature, HSN/SAC, tax rate, and place of supply.
Pay tax in cash in GSTR-3B
Disclose in Table 3.1(d) and pay via cash ledger; ITC cannot be used to discharge RCM liability.
Claim ITC next period
Subject to eligibility, claim the same amount as ITC in Table 4(A)(3) in GSTR-3B of the same/next period.
Issue self-invoice/payment voucher if needed
Required for supplies from unregistered persons and import of services per rules.
Reporting snapshot
- GSTR-3B: Table 3.1(d) (liability) and Table 4(A)(3) (ITC on RCM)
- GSTR-1: Not applicable for purchases; show outward supplies under RCM only if you are supplier of notified category that recipient pays for
Cash only
RCM tax must be paid in cash; then ITC (subject to conditions) can be availed.
Common pitfalls
- Using ITC to pay RCM liability
- Missing ITC claim after payment
- Wrong SAC leading to underpayment
- Not issuing self-invoice for URD purchases where applicable
References
- Sections 9(3), 9(4) CGST Act; Notifications on RCM services/goods
- Rules 36, 46, 52 (documentation)