GST Reverse Charge Mechanism (RCM) Compliance

Reverse Charge Mechanism (RCM) under GST shifts the liability to pay tax from the supplier to the recipient of goods or services, under two distinct legal triggers in the CGST Act, 2017.

Section 9(3) covers notified categories of supply — irrespective of the supplier's registration status — where the Government has specifically directed that tax be paid by the recipient. The operative list of such services is prescribed in Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017 (as amended), and includes Goods Transport Agency (GTA) services (where the GTA has not opted to pay forward charge), legal services rendered by an advocate or firm of advocates, sponsorship services, security services (other than by a body corporate to a body corporate, in certain cases), services of a director to the company, and services by an insurance agent to an insurance company, among others. A mirror notification for goods, Notification No. 4/2017-Central Tax (Rate), covers specified goods such as cashew nuts, silk yarn, and used vehicles sold by Government.

Section 9(4) covers supplies of specified goods or services received by a notified class of registered persons from unregistered suppliers; its current scope is narrower than the original blanket provision and applies only as notified (e.g., promoters procuring construction inputs from unregistered suppliers under Notification No. 07/2019-Central Tax (Rate)).

Compliance consequences: a recipient liable under RCM must register under GST without benefit of the turnover-based threshold exemption (Section 24(iii)), must self-invoice under Section 31(3)(f) where the supplier is unregistered, must discharge the tax in cash via the electronic cash ledger (RCM liability cannot be set off against available Input Tax Credit), and may then claim Input Tax Credit on that self-paid tax under Section 16, subject to the usual conditions and time limits under Section 16(4).

The reverse charge mechanism (RCM) shifts the liability to pay GST from the supplier to the recipient for specified supplies. Under Section 9(3) of the CGST Act 2017 and the corresponding provisions of the IGST and SGST Acts, the government notifies categories of supplies — services from unregistered suppliers, specified services like legal services, GTA, sponsorship, and notified goods like cashew, tobacco leaves and scrap — on which the recipient, not the supplier, must pay the tax. The notified list under the Acts and Rules is the definitive source of what is covered.

The reverse charge is the invisible liability in the purchase ledger. The supplier does not charge the tax; the buyer must identify the purchase as a reverse charge supply, pay the tax in cash (the credit on RCM is claimable under Section 16 of the CGST Act, but the payment itself cannot be set off against the output liability of other supplies), and report it in the GSTR-3B under the RCM field. It is one of the most frequently missed positions in GST compliance.

The cost of a missed reverse charge is the demand arithmetic: the tax on the RCM supplies that was never paid, the interest under Section 50, and the penalty exposure under Sections 73 or 74 — plus the blocked position where the credit was claimed without the payment. The RCM is where compliant businesses quietly lose the most.

This service is for businesses with RCM exposure — service recipients, government contractors, businesses buying from unregistered suppliers. We map your purchases against the notified RCM list under Section 9(3), set up the RCM tracker in the purchase process, compute the monthly RCM liability, file it correctly in the GSTR-3B with the credit under Section 16, and review the position before the audit.