Reverse Charge Mechanism (RCM) Under GST — Complete Guide 2025

Under normal GST rules, the supplier charges GST and pays it to the government. Under the Reverse Charge Mechanism (RCM), the responsibility to pay GST shifts from the supplier to the recipient of goods or services. If you purchase certain notified services — such as legal services from an advocate, goods transport services, or services from an unregistered person in certain cases — you must pay GST under RCM, even if the supplier has not charged it. This guide explains everything you need to know.

What is RCM?

Reverse Charge Mechanism (RCM) is defined under Section 9(3) and 9(4) of the CGST Act. Under RCM, the recipient of certain notified supplies is liable to pay GST directly to the government, instead of paying it to the supplier. The supplier issues a tax invoice without charging GST, and the recipient declares and pays it in their GSTR-3B.

Section 9(3) — Specified Notified Services Under RCM

The Central Government has notified specific goods and services where RCM applies. Key ones include:

• Legal services by an advocate (individual or firm) to a business entity
• Goods Transport Agency (GTA) services when GST is not paid by the GTA
• Services by directors of a company to the company
• Import of services from a supplier outside India
• Services by a recovery agent to a banking company
• Renting of motor vehicles for transport of employees by a non-corporate entity
• Services by an insurance agent to an insurance company
• Security services from an unregistered entity

Section 9(4) — Purchase from Unregistered Persons

Section 9(4) originally made all purchases from unregistered suppliers liable for RCM. However, this was suspended and is now applicable only to specified categories of registered persons (notified under GST Notification 07/2019).

ITC on Tax Paid Under RCM

The good news: the GST paid under RCM is eligible as Input Tax Credit (ITC) in the same tax period, provided the goods or services are used for business purposes. The ITC can be claimed in GSTR-3B and set off against your output tax liability. However, ITC on RCM is available only after the tax is actually paid in cash — not on credit.

Invoicing Under RCM

When purchasing services under RCM (e.g., from an advocate or GTA), the recipient must issue a self-invoice (in the absence of an invoice from the supplier). This self-invoice is the document on which ITC is claimed.

The self-invoice must include: the supplier's name and address, date, description of service, taxable value, applicable GST rate and amount and a statement that tax is payable on reverse charge basis.

Reporting RCM in Returns

In GSTR-3B, RCM tax payable is reported in Table 3.1(d) — "Inward supplies liable to reverse charge." ITC on RCM payments is claimed in Table 4(A)(3). In GSTR-1, RCM self-invoices are not reported (GSTR-1 covers only outward supplies).

Conclusion

RCM is an area where many businesses unknowingly fall short on compliance. Regular review of your vendor and service provider list against the RCM notification list is essential. SPOTON's GST team handles RCM identification, payment and ITC reconciliation for businesses across Kerala. Contact us for a GST health check today.