Reverse Charge Mechanism (RCM) is the GST provision under which the recipient, not the supplier, pays the tax. Notification 13/2017-Central Tax (Rate) lists the services covered — including goods transport agency, advocate services, director services and sponsorship — for which the recipient must self-assess and pay GST in cash.
How reverse charge works
Under Section 9(3) of the CGST Act, the Government notifies categories of supply on which the recipient is liable to pay GST. The supplier does not charge GST on the invoice; the recipient pays it directly to the Government in cash (RCM liability cannot be set off using ITC), reports it in GSTR-3B Table 3.1(d), and then claims it back as ITC in the same or a later period if otherwise eligible.
Key notified services under 13/2017
| Service | Supplier | Recipient who pays RCM |
|---|---|---|
| Goods Transport Agency (road) | GTA (not opting forward charge) | Specified business recipients |
| Legal services | Advocate / firm of advocates | Business entity |
| Services by a director | Director (in personal capacity) | The company / body corporate |
| Sponsorship | Any person | Body corporate / partnership firm |
| Services by government | Central/State Government | Business entity (with exceptions) |
| Import of services | Person outside India | Recipient in India |
This is an indicative extract; the notification has been amended several times. Verify the current entry and any conditions for your specific service.
Worked example: GTA
A manufacturer pays a goods transport agency Rs.1,00,000 for freight; the GTA has not opted for forward charge. The manufacturer pays GST at 5% under RCM = Rs.5,000 in cash, reports it in GSTR-3B 3.1(d), and claims Rs.5,000 as ITC (freight for business is not blocked). Net cash impact is timing only, but the compliance step is mandatory and missing it attracts interest.
ITC and common pitfalls
- RCM tax must be paid in cash — it cannot be discharged using ITC.
- ITC of RCM paid is available only if the inward supply is used for business and is not blocked under Section 17(5).
- Director's remuneration that is salary (employer-employee) is not subject to RCM; only non-salary director services are. See director's remuneration RCM.
- Self-invoice under Section 31(3)(f) is required for RCM supplies from unregistered suppliers.
Key takeaways
- Under RCM the recipient pays GST, in cash, not the supplier.
- Notification 13/2017-CT(R) lists covered services: GTA, advocate, director, sponsorship, etc.
- RCM tax is paid in cash; ITC of it is claimed separately if eligible.
- Self-invoicing is required for RCM from unregistered suppliers.