Reverse Charge Mechanism (RCM) Under GST Explained

What is Reverse Charge Mechanism (RCM)?

Under the normal GST mechanism, the supplier collects tax from the buyer and remits it to the government. Under Reverse Charge Mechanism (RCM), the liability to pay GST shifts to the recipient of goods or services instead of the supplier.

RCM is governed by Section 9(3) and Section 9(4) of the CGST Act, 2017.

When Does RCM Apply?

Section 9(3) – Notified Goods and Services

The government has notified specific categories of goods and services where RCM applies regardless of whether the supplier is registered or not.

Section 9(4) – Supplies from Unregistered Persons

Specified categories of registered persons must pay GST under reverse charge when receiving supplies from unregistered suppliers.

List of Services Under RCM

List of Goods Under RCM

• Cashew nuts (not shelled) – From agriculturist to registered person
• Tobacco leaves – From agriculturist to registered person
• Silk yarn – From manufacturer to registered person
• Raw cotton – From agriculturist to registered person
• Used vehicles and seized goods – From government departments

How to Pay Tax Under RCM

1. Identify RCM supplies – Review your inward supplies for RCM applicability
2. Self-invoice – Issue a self-invoice (for supplies from unregistered persons)
3. Pay tax in cash – RCM tax must be paid in cash (from electronic cash ledger). ITC cannot be used to discharge RCM liability
4. Report in GSTR-3B – Report RCM liability in Table 3.1(d) of GSTR-3B
5. Claim ITC – After paying RCM tax, claim ITC in the same month's return (Table 4(A)(3))

ITC on RCM Payments

The recipient can claim Input Tax Credit on tax paid under RCM, subject to the following conditions:

• The goods or services are used for business purposes
• The tax has been actually paid to the government
• The payment is reported in GSTR-3B
• The supply is not covered under blocked credits (Section 17(5))

Key Points to Remember

• RCM liability must be paid in cash — it cannot be adjusted against ITC balance
• Time of supply under RCM for services is the earlier of date of payment or 60 days from invoice date
• Composition dealers receiving RCM supplies must pay tax at the normal GST rate (not composition rate)
• RCM payments are eligible for ITC even for composition dealers

Handle RCM Compliance with FileWithUs.ai

FileWithUs.ai automatically identifies purchases that fall under reverse charge and generates self-invoices where required. The platform tracks your RCM liability separately, ensuring it is correctly reported in GSTR-3B and the corresponding ITC is claimed in the same period.