All about Reverse Charge Mechanism (RCM) under GST

Updated on: Sep 15th, 2025

13 min read

Reverse Charge Mechanism (RCM) is a system under GST where the recipient of goods or services pays tax instead of the supplier. It ensures tax compliance in cases where the government finds it difficult to collect from suppliers, like in unorganized sectors or specified transactions.

Key Takeaways
RCM shifts tax liability from supplier to recipient in specific notified cases.
It applies differently for notified supplies, purchases from unregistered dealers, and certain e‑commerce situations.
RCM ensures better tax tracking, especially for high‑risk goods or services.
Input Tax Credit (ITC) is available to the recipient if used for business purposes.
Compliance under RCM requires timely payment, accurate reporting, and GST registration.

What is Reverse Charge Mechanism?

Reverse Charge Mechanism (RCM) is a provision under GST where the liability to pay tax is on the buyer of goods or services instead of the seller. This method helps the government cover transactions prone to tax evasion or difficult to monitor. The recipient must self‑invoice (if needed) and pay GST directly to the government.

When is Reverse Charge Applicable?

The provisions of Reverse Charge Mechanism (RCM) are defined under the following laws:

Section 9(3) of CGST Act & Section 5(3) of IGST Act – Notified Goods and Services
Section 9(4) of CGST Act & Section 5(4) of IGST Act – Purchases from Unregistered Suppliers
Section 9(5) of CGST Act & Section 5(5) of IGST Act – E‑commerce Transactions

Let’s break each down in simple language with examples:

1. Tax on Notified Supplies

Certain notified goods and services require the recipient to pay GST instead of the supplier. This typically applies where suppliers are unorganized or numerous, making it hard to track tax payments.

For example:
A company hiring a Goods Transport Agency (GTA) for freight services must pay GST under the reverse charge mechanism.

List of Notified Goods Under Section 9(3):

S. No.	Description of Supply	Supplier of Goods	Recipient of Supply
1	Cashew nuts, not shelled or peeled	Agriculturist	Any registered person
2	Bidi wrapper leaves (tendu)	Agriculturist	Any registered person
3	Tobacco leaves	Agriculturist	Any registered person
4	Essential oils (peppermint, spearmint, water mint, horsemint, bergamot)	Any unregistered person	Any registered person
5	Silk yarn (manufactured from raw silk or silk worm cocoons)	Manufacturer of silk yarn	Any registered person
6	Raw cotton	Agriculturist	Any registered person
7	Supply of lottery	State Govt., UT, local authority	Lottery distributor/selling agent
8	Used vehicles, seized/confiscated goods, old & used goods, waste, scrap	Central Government (excluding Indian Railways), State Govt., UT, local authority	Any registered person
9	Priority Sector Lending Certificate	Any registered person	Any registered person
10	Metal scrap	Any unregistered person	Any registered person

List of Notified Services Under Section 9(3):

S. No.	Description of Service	Supplier of Service	Recipient of Service
1	Services by Goods Transport Agency (GTA) for transportation of goods by road to specified entities	Goods Transport Agency (GTA)	Factories, registered persons, corporate bodies, casual taxable persons in taxable territory
2	Legal services supplied by individual advocate, senior advocate or firm of advocates	Individual Advocate or Advocate Firm	Any business entity in taxable territory
3	Services by an arbitral tribunal to a business entity	Arbitral tribunal	Any business entity in taxable territory
4	Sponsorship services to a body corporate or partnership firm	Any person other than body corporate	Body corporate or partnership firm in taxable territory
5	Services by Central/State/UT Government/local authority to business entities excluding certain exempt services	Governments or local authorities	Business entities in taxable territory
5A	Renting of immovable property by government entities to registered persons	Central/State/UT Government/local authority	Registered persons under CGST Act
5AA	Renting residential dwelling to a registered person	Any person	Registered person
5AB	Renting non-residential property by unregistered persons to registered persons, excluding composition scheme	Any unregistered person	Registered person (excluding composition scheme)
5B	Transfer of development rights or Floor Space Index (FSI) to promoter	Any person	Promoter
5C	Long term lease of land (30 years or more) for construction to promoter	Any person	Promoter
6	Services supplied by directors to company or body corporate	Director	Company or body corporate in taxable territory
7	Services by insurance agents to any person carrying on insurance business	Insurance agent	Insurance business entity in taxable territory
8	Services by recovery agents to banking companies, financial institutions, NBFCs	Recovery agent	Banks, financial institutions, NBFCs in taxable territory
9	Transfer or permitting use/enjoyment of copyright by music composer, photographer, artist to music company	Music composer, photographer, artist	Music company, producer in taxable territory
9A	Similar copyright use/enjoyment by author to publisher, with forward charge options	Author	Publisher in taxable territory
10	Services by members of Overseeing Committee to Reserve Bank of India	Members of RBI Overseeing Committee	Reserve Bank of India
11	Services by individual Direct Selling Agents (DSAs) to banking or NBFC entities	Individual DSA (other than firm or body corporate)	Banks or NBFCs in taxable territory
12	Services by Business Facilitators to banking companies	Business facilitator	Banks in taxable territory
13	Services by agents of Business Correspondents to Business Correspondents	Agent of BC	BCs in taxable territory
14	Security services by supply of security personnel to registered person (with exclusions)	Any person other than body corporate	Registered person in taxable territory
15	Renting of motor vehicles to body corporate where provider opts 5% GST and is eligible for ITC	Any person other than body corporate (opted for 5%)	Body corporate in taxable territory
16	Lending securities under SEBI approved scheme	Lender	Borrower through approved intermediary

2. Purchases from Unregistered Suppliers

This applies when a registered buyer purchases goods or services from an unregistered supplier but only for notified goods or services.

For example:
A registered real estate developer purchasing cement from an unregistered supplier must pay GST under reverse charge at the applicable rate of 28%

List of Supplies Under Section 9(4):

Sl. No.	Category of Supply	Recipient of Goods/Services
1	Goods and services (other than development rights, long-term lease of land, or FSI) constituting the shortfall from 75% minimum prescribed purchase value in a financial year	Promoter
2	Cement	Promoter
3	Capital goods	Promoter

3. E-commerce Transactions

For specified services supplied through e-commerce platforms, the platform operator (not the individual supplier) is liable to pay tax. This simplifies tax collection in fragmented markets.

For example:
Cab rides booked via apps like Ola or Uber have GST paid by the platform operator under reverse charge, not the individual driver.

List of Specified Services Under Section 9(5), Where the Electronic Commerce Operator (ECO) is Liable to Pay GST:

S. No.	Description of Service	Supplier of Service	Person Liable to Pay GST
i	Transportation of passengers by radio-taxi, motorcab, maxicab, motor cycle, or any other motor vehicle except omnibus	Taxi driver or rent-a-cab operator	Electronic commerce operator
ia	Transportation of passengers by an omnibus	Any person except where supplied through ECO by a company	Electronic commerce operator
ii	Providing accommodation in hotels, inns, guest houses, clubs, campsites, or other commercial lodging places	Any person except where supplied through ECO and liable for registration	Electronic commerce operator
iii	Housekeeping services such as plumbing, carpentering, etc.	Any person except where supplied through ECO and liable for registration	Electronic commerce operator
iv	Supply of restaurant services (other than those located at hotels with declared tariff above ₹7,500 per unit per day)	Any person	Electronic commerce operator

Note: The list of goods and services covered under Reverse Charge Mechanism (RCM) is subject to periodic updates and changes based on government notifications and GST Council decisions. Businesses should stay informed about the latest notifications to ensure compliance.

Time of Supply Under RCM

Time of supply determines when tax liability arises. Under RCM, the recipient must ensure timely payment.

For Goods

The time of supply is the earliest of:

Date of receipt of goods, OR
Date of payment, OR
30 days from invoice date

If none can be determined, the date of book entry is taken.

For Services

The time of supply is the earliest of:

Date of payment, OR
60 days from invoice date
Date of issue of the recipient’s invoice (if applicable to services)

If none can be determined, the date of book entry is taken.

Registration and Compliance under RCM

Mandatory Registration: Any person liable to pay tax under RCM must register under GST, even if their turnover is below the threshold.

Tax Payment: GST must be paid in cash (not through ITC) at the time of filing returns.

Self‑Invoicing: If the supplier is unregistered, the recipient must issue a self-invoice.

Payment Voucher: A payment voucher should also be issued when making payment to the supplier.

Input Tax Credit (ITC) Under RCM

The recipient who pays GST under RCM is eligible to claim Input Tax Credit, provided:

The goods or services are received, and
The goods or services are used for business purposes.

The recipient cannot use ITC to pay the RCM tax itself, the tax under RCM must be paid in cash first. However, once paid, the recipient can claim the full ITC of this tax while filing GST returns.

What is Self Invoicing?

Self‑invoicing is the process by which the recipient issues an invoice on behalf of the supplier. This is mainly required when the supplier is unregistered and thus cannot issue a GST invoice.
Self‑invoices should contain all the mandatory invoice details and must be maintained in the recipient’s books for GST compliance. This ensures the proper documentation of supplies liable to RCM and facilitates GST payment and claim of ITC.

Reporting RCM Transactions

Role	Return Form	Table	Purpose
Recipient	GSTR-3B	Table 3.1(d)	Report RCM GST liability
Recipient	GSTR-3B	Table 4(A)(3)	Claim ITC on RCM inward supplies
Supplier	GSTR-1	Table 4B (B2B RCM supplies)	Report outward supplies under RCM

Ensure accurate reporting of RCM transactions in GST returns and maintain detailed records to support ITC claims and avoid compliance issues.

Frequently Asked Questions

What happens if the receiver of goods or services is required to pay tax under reverse charge but is not a registered dealer?

All taxpayers required to pay tax under reverse charge have to register for GST, and the threshold of Rs.20 lakh or Rs.40 lakh, as the case may be, does not apply to them.

Is Input Tax Credit (ITC) allowed under reverse charge?

Tax paid on a reverse charge basis will be available for ITC if such goods or services are used, or will be used, for business. The recipient, i.e., who pays reverse tax, can avail it as ITC.

What if an Input Service Distributor (ISD) receives supplies liable to reverse charge?

An ISD cannot make purchases liable to reverse charge. If the ISD wants to procure such supplies and take the reverse charge paid as ITC, the ISD should register as a regular taxpayer.

When can one claim ITC of tax paid under RCM?

The person who paid tax under RCM in a month can claim it as ITC in the same month.

What is the ₹5,000 per day limit in RCM?

Initially, purchases up to ₹5,000 per day from unregistered dealers were exempt, but later this limit was withdrawn via Notification No. 1/2019-Central Tax (Rate).

What is the RCM procedure?

Identify RCM transactions > Raise a self-invoice > Issue payment voucher > Pay GST via cash > Report in GSTR-3B > Claim ITC

How is RCM calculated in GST?

RCM is calculated at the same GST rate applicable to the goods or services supplied.

Who is exempted from paying RCM?

Exemptions may exist for certain organisations or transactions as notified by the CBIC. Always refer to current guidelines.

Which supplies are covered under RCM?

RCM is applicable on notified goods/services, purchases from certain unregistered suppliers, and e‑commerce specified supplies.

How to report RCM transactions in GSTR-3B and GSTR‑1?

RCM transactions are reported by the recipient in GSTR-3B Table 3.1(d) for tax liability and Table 4 for ITC; registered suppliers report in Table 4B of GSTR-1.

How is RCM applicable on purchases from unregistered dealers?

If notified, the registered buyer must self-invoice and pay GST.

What are the consequences of non‑compliance under RCM?

Late fees, interest, and penalties may apply; ITC can be denied until tax is paid.

What are the recent changes in RCM notifications under GST?

January 16, 2025 – Notification No. 07/2025-Central Tax (Rate)
Sponsorship services removed from RCM; suppliers must now pay GST under forward charge.

February 11, 2025 – Notification No. 09/2025-Central Tax
Clarification on ISD compliance: ISDs must separately register and distribute ITC on RCM supplies properly.

About the Author

AJ

Manager - Content

As a qualified Chartered Accountant with extensive expertise in accounting, finance, taxes, and audit, I specialise in simplifying complex regulations for a broader audience. Well-versed in tax laws across India and the GCC region, I have a keen interest in the evolving finance ecosystem. Passionate about learning, I enjoy engaging in conversations, exploring new cultures through travel, and unwinding with music.. Read more

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