Reverse Charge Mechanism (RCM) Under GST

Most people know how the Goods and Services Tax or GST usually works. The seller adds GST to the bill collects it from the buyer and deposits it with the government. This is simple enough.. There is a category of transactions under GST law where this flow is reversed. In this case the buyer, not the seller is responsible for calculating, paying and reporting the GST. This is called the Reverse Charge Mechanism or RCM.

The Reverse Charge Mechanism exists because there are sectors of the economy where suppliers are either too small to register operating in unorganised industries or located outside India entirely. Of chasing thousands of small or foreign suppliers the government shifts the compliance burden to the recipient. The recipient is already registered, traceable and accountable. The tax gets collected, with less administrative effort.

The Reverse Charge Mechanism is not a rare edge case. It applies to a range of everyday business transactions. If you miss it you will have to pay interest, penalties and notices.

There are three sections that govern the Reverse Charge Mechanism. The Reverse Charge Mechanism operates through three provisions under the Central Goods and Services Tax Act. Section 9(3) covers services notified by the government where RCM applies regardless of whether the supplier is registered or not. Section 9(4) applies RCM on purchases from suppliers but only for specific notified categories. Section 9(5) places GST liability on Electronic Commerce Operators for services provided through their platforms.

There are services notified under Section 9(3). These include Goods Transport Agency services, legal services by advocates, arbitral tribunal services, sponsorship services, government and local authority services, directors fees and sitting fees insurance agent services, recovery agent services, copyright services and import of services. For example when a business entity receives services from a tribunal the business pays 18% GST under RCM.

The primary notification governing this list is Notification No. 13/2017 – Central Tax (Rate) dated 28 June 2017. This notification has been amended times.

Let us look at some of these services in detail. When a Goods Transport Agency transports goods by road and issues a consignment note the recipient must pay GST under RCM provided the Goods Transport Agency has not opted for charge. Any legal service provided by an advocate, senior advocate or firm of advocates to a business entity attracts RCM at 18%. The business entity receiving the service must pay GST issue a self-invoice and claim input tax credit accordingly.

The Reverse Charge Mechanism also applies to arbitral tribunal services. When a business entity receives services from a tribunal the business pays 18% GST under RCM. Sponsorship services are also covered under RCM. When a company sponsors an event organised by a body partnership firm or individual the sponsoring company pays 18% GST under RCM on the sponsorship amount.

The government and local authority services are also taxable under RCM. Services provided by the Central Government, State Governments or local authorities to a business entity are taxable under RCM. The registered business receiving services pays the applicable GST.

Directors fees and sitting fees are also covered under RCM. When a company pays sitting fees, commissions or other non-salary remuneration to a director the company pays 18% GST under RCM. Salary paid to whole-time directors is not covered under RCM.

The Reverse Charge Mechanism also applies to insurance agent services. When an individual insurance agent provides services to an insurance company the insurer pays GST under RCM on the agents commission. Recovery agent services are also covered under RCM. When banks, Non-Banking Financial Companies or financial institutions engage recovery agents the bank or Non-Banking Financial Company pays GST under RCM on the recovery agents fees.

Copyright services are also taxable under RCM. When an author, music composer, photographer or similar creative professional transfers or permits the use of copyright in a dramatic, musical or artistic work to a publisher or business entity GST is payable under RCM by the recipient.

Import of services is also covered under RCM. When any business entity in India receives services from a supplier located outside India, Integrated Goods and Services Tax is payable under RCM by the recipient. There is no threshold exemption.

Renting of property by an unregistered person is also covered under RCM. If an unregistered landlord rents commercial property to a registered business entity the business must pay GST under RCM on the rent.

Section 9(4) of the Central Goods and Services Tax Act applies to purchases from suppliers. However this section no longer applies universally. After practical difficulties it was restricted to apply only to specific notified categories.

Section 9(5) of the Central Goods and Services Tax Act applies to Electronic Commerce Operators. Under this section the Electronic Commerce Operator is deemed to be the supplier. Must pay GST in place of the actual service provider. This currently covers cab and passenger transport services through apps like Ola and Uber, housekeeping and domestic services through platforms like Urban Company and restaurant services ordered through Swiggy and Zomato.

When you pay GST under RCM the supplier has not charged GST on the invoice. To complete the documentation the recipient must issue a self-invoice under Rule 36(1)(b) of the Central Goods and Services Tax Rules. Without a self-invoice input tax credit cannot be claimed.

The good news is that GST paid under RCM is eligible for input tax credit for business use making it revenue-neutral in cases. The RCM liability must be reported in Table 3.1(d) of GSTR-3B and input tax credit claimed in Table 4(A)(3). RCM tax must be deposited by the 20th of the following month.

In conclusion the Reverse Charge Mechanism is one of the commonly missed areas in GST compliance particularly for smaller businesses. A few practical steps can keep you covered. Maintain a tracker of all transactions that could attract RCM. Issue self-invoices within 30 days. Confirm whether your Goods Transport Agency has opted for charge at the start of each financial year. Report RCM in GSTR-3B every month for routine transactions.

The GST portal is also getting stricter. As per the December 2025 advisory hard validations are being introduced for balances in RCM liability ledgers. Manual errors that once went unnoticed will now block return filing. Accuracy in reporting is more important, than ever.

The Reverse Charge Mechanism is not optional. It is not going away. If anything its scope has grown with each GST Council meeting. Businesses that treat it as a formality tend to face the biggest surprises at audit time. Handled correctly with the records, timely payments and accurate returns RCM is manageable and the input tax credit ensures it does not cost you extra.

When in doubt speak to your Chartered Accountant before the liability compounds. The Reverse Charge Mechanism is a topic and it is always better to seek professional advice to avoid any mistakes.