Reverse Charge Mechanism (RCM)

The Reverse Charge Mechanism (RCM) is a GST provision under which the recipient of goods or services, rather than the supplier, is liable to assess and pay the tax directly to the government. It inverts the normal flow where the supplier collects and remits GST, and applies only to transactions notified by the CBIC or specified in law. The rate of tax under RCM is the same rate that would apply to the supply under forward charge.

Legal basis

• Section 9(3), CGST Act 2017 (and Section 5(3), IGST Act): a notified list of supplies. Notified services — goods transport agency (GTA) freight, legal services by an advocate, sponsorship, director's services to a company, and security services from non-corporate providers — are listed in Notification No. 13/2017-Central Tax (Rate). Notified goods, including metal scrap (added by Notification No. 6/2024), sit in Notification No. 4/2017-Central Tax (Rate).
• Section 9(4), CGST Act (and Section 5(4), IGST): certain supplies received from unregistered persons, currently limited to notified cases such as real-estate promoters.

How it works

• The recipient must discharge the RCM liability in cash via the electronic cash ledger; it cannot be paid using accumulated input tax credit.
• Where the supplier is unregistered, the recipient issues a self-invoice under Section 31(3)(f) with the particulars required by Rule 46, plus a payment voucher.
• The tax paid is available as ITC under Section 16 if the inputs are used for taxable business supplies and are not blocked under Section 17(5).

Registration and reporting

Anyone liable to pay under RCM must register under Section 24 regardless of the turnover threshold. The liability is declared in Table 3.1(d) of GSTR-3B, with the corresponding credit claimed in Table 4.