Detailed Explanation
How it works
RCM applies to notified supplies (such as GTA, legal and director services) under Section 9(3), and to certain inward supplies. The recipient pays the tax in cash, issues a self-invoice where needed, and can claim ITC of the RCM paid if otherwise eligible.
The two RCM families
Notified-supply RCM under Section 9(3) CGST Act covers a fixed list — GTA services, advocate services, sponsorship, director services to the company, import of services, security services from non-corporates, renting of residential dwellings to registered persons, and (from October 2024) commercial renting by unregistered landlords to registered tenants, among others. Section 9(4) RCM applies to specified purchases from unregistered suppliers (now largely confined to promoters/builders buying from unregistered vendors).
Worked example
A company receives an invoice of Rs.2,00,000 from a law firm. Advocate services are under RCM: the company pays the firm Rs.2,00,000 (no GST on the invoice), self-invoices under Section 31(3)(f), pays Rs.36,000 IGST/CGST+SGST in cash (RCM cannot be discharged from the credit ledger), and claims the Rs.36,000 as ITC in the same month's GSTR-3B — net cost nil for a full-credit business, but real cash cycles through.
Compliance discipline
Maintain an RCM register mapped to expense GLs (legal, freight, director fees, foreign SaaS), self-invoice monthly, disclose in GSTR-3B Table 3.1(d), and remember time-of-supply for RCM services is the earlier of payment date or 60 days from invoice. Missed RCM found in audit means tax plus interest — with the ITC often time-barred, converting a neutral item into a real cost. Track the notified list (13/2017-CTR as amended) at cbic.gov.in.
Frequently asked questions
Who pays GST under reverse charge?
The recipient of the supply pays the GST in cash, instead of the supplier charging it.
Can RCM be paid using ITC?
No. Reverse-charge tax must be paid in cash; the credit can then be claimed separately if eligible.
This content is for general guidance only and does not constitute professional advice. Tax law changes frequently — verify the current position and consult a qualified Chartered Accountant before acting. Last reviewed: June 2026.