FreeComplianceReverse charge mechanism (RCM) under GST explained
Normally the supplier charges and pays GST. Under the reverse charge mechanism (RCM), the recipient pays it instead. Companies often owe RCM on everyday expenses without realising it.
Common RCM items for companies
| Service | Supplier |
|---|---|
| Legal services | An advocate or firm of advocates |
| Services by directors | A director, to the company (e.g. sitting fees) |
| Goods transport | A goods transport agency not opting to pay tax itself |
| Security services | A non-body-corporate security agency |
| Sponsorship | Any person, to a body corporate or firm |
| Import of services | A supplier outside India |
| Renting of commercial property | An unregistered person, to a registered person (not composition taxpayers) |
This list is set by notification and changes from time to time. Check the current list for your expenses.
How RCM works
- 1.The recipient issues a self-invoice if the supplier is unregistered.
- 2.The recipient pays the GST in cash through GSTR-3B. RCM cannot be paid using input tax credit.
- 3.The recipient claims the same amount as input tax credit, if otherwise eligible, in the same return.
For most businesses RCM is cash-flow neutral but must still be paid and reported correctly. Missing it leads to interest and penalties in audits.
Frequently asked questions
This guide is general information, not legal advice. Government fees and procedures change; confirm current figures before you file.
- Input tax credit under GST: conditions, blocked credits and time limits
How input tax credit works under GST, the conditions in Section 16, blocked credits in Section 17(5), and the deadline to claim it.
- GST registration threshold: when is GST registration mandatory?
GST registration limits for goods and services, special category states, and the cases where registration is compulsory regardless of turnover.
- GSTR-1 vs GSTR-3B: the difference and due dates
What GSTR-1 and GSTR-3B report, how they connect through GSTR-2B, monthly and quarterly due dates, and common mismatches.