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Reverse charge mechanism (RCM) under GST explained

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Normally the supplier charges and pays GST. Under the reverse charge mechanism (RCM), the recipient pays it instead. Companies often owe RCM on everyday expenses without realising it.

Common RCM items for companies

ServiceSupplier
Legal servicesAn advocate or firm of advocates
Services by directorsA director, to the company (e.g. sitting fees)
Goods transportA goods transport agency not opting to pay tax itself
Security servicesA non-body-corporate security agency
SponsorshipAny person, to a body corporate or firm
Import of servicesA supplier outside India
Renting of commercial propertyAn unregistered person, to a registered person (not composition taxpayers)

This list is set by notification and changes from time to time. Check the current list for your expenses.

How RCM works

  1. 1.The recipient issues a self-invoice if the supplier is unregistered.
  2. 2.The recipient pays the GST in cash through GSTR-3B. RCM cannot be paid using input tax credit.
  3. 3.The recipient claims the same amount as input tax credit, if otherwise eligible, in the same return.

For most businesses RCM is cash-flow neutral but must still be paid and reported correctly. Missing it leads to interest and penalties in audits.

Frequently asked questions

Yes. A person liable to pay tax under reverse charge must register regardless of turnover.

No. Salary to a whole-time director as an employee is not a supply. Sitting fees and other non-employee payments attract RCM.

This guide is general information, not legal advice. Government fees and procedures change; confirm current figures before you file.

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