What Is the Reverse Charge Mechanism?

Under normal GST, the supplier collects tax from the buyer and deposits it with the government. Under the Reverse Charge Mechanism (RCM), this responsibility shifts — the recipient pays the GST directly. This was introduced to bring unorganized sectors into the tax net and ensure compliance from suppliers who might otherwise evade registration.

RCM is governed by two sections of the CGST Act, 2017:

• Section 9(3): The government notifies specific categories of goods and services where RCM always applies — regardless of whether the supplier is registered.
• Section 9(4): Purchases from unregistered persons in specified categories — the registered recipient pays GST.

Services That Attract Reverse Charge

The following services are notified under RCM (Notification 13/2017-CT Rate):

How to Calculate GST Under RCM

The calculation depends on whether the supply is intra-state or inter-state:

• Intra-state: Tax splits equally into CGST and SGST. For example, 18% = 9% CGST + 9% SGST.
• Inter-state: Full amount charged as IGST. For example, 18% IGST.

Worked Example

A company in Mumbai hires an advocate in Delhi for Rs 1,00,000 (inter-state supply):

• Taxable value: Rs 1,00,000
• GST @ 18% under RCM: Rs 18,000 (full IGST since inter-state)
• Total payment to advocate: Rs 1,00,000 (no GST charged by supplier)
• RCM liability to deposit: Rs 18,000 IGST (in cash — cannot use ITC balance)
• ITC claimable: Rs 18,000 (in the same return period)
• Net cash impact: Rs 0 (liability and credit cancel out)

Use our RCM calculator to compute RCM liability for multiple services at once.

ITC on RCM — What You Can and Cannot Claim

GST paid under reverse charge is eligible for ITC in most cases, subject to the general ITC conditions under Section 16:

• You must be a registered taxable person (not composition)
• The goods or services must be used for business purposes
• You must hold a valid tax invoice or self-invoice
• The supplier must have filed their return (for Section 9(3) supplies)

When ITC Is Blocked

• Residential rent: GST paid under RCM on renting a residential dwelling for personal use is blocked under Section 17(5)
• Composition dealers: Cannot claim any ITC, including on RCM payments
• Exempt supplies: If the input is used for exempt supplies, ITC must be reversed proportionally

Self-Invoice and Payment Voucher

When you receive supplies from an unregistered person under Section 9(4), you must issue a self-invoice in your own name. This document:

• Must contain all the details of a regular tax invoice
• Uses your own GSTIN as the supplier GSTIN
• Is required for claiming ITC on the RCM payment
• Must be issued at the time of payment or within 30 days

How to Report RCM in GST Returns

GSTR-3B Reporting

• Table 3.1(d): Report the total RCM output tax liability
• Table 4(A)(2): Claim ITC on import of services (IGST)
• Table 4(A)(3): Claim ITC on domestic RCM (inward supplies)

GSTR-1 Reporting

No reporting needed in GSTR-1 for RCM transactions — you are the recipient, not the supplier. The outward supply return does not cover inward supplies.

GSTR-9 (Annual Return)

RCM transactions must be disclosed separately in the annual return in Table 4 (details of advances, inward supplies from unregistered persons, and inward supplies on which tax is payable under RCM).

Common Mistakes to Avoid

1. Using ITC balance to pay RCM: RCM liability must be paid in cash through the electronic cash ledger. You cannot set it off against your existing ITC balance.
2. Forgetting director fees: Many companies overlook that director sitting fees and commissions attract 18% RCM. The amount paid to the director is exclusive of GST — the company pays GST separately.
3. Not issuing self-invoices: Without a self-invoice for Section 9(4) supplies, you cannot claim ITC on the RCM payment.
4. Confusing GTA forward and reverse charge: If a GTA opts for forward charge (12% with ITC or 5% without), RCM does not apply. Check the GTA's declaration before calculating.
5. Claiming ITC on residential rent: Even though GST is payable under RCM on residential property rent by a registered person, ITC is blocked. This is a common audit finding.

Frequently Asked Questions

What is Reverse Charge Mechanism under GST?

Under RCM, the recipient pays GST instead of the supplier. It applies to specific services notified by the government (Section 9(3)) and to purchases from unregistered persons in specified categories (Section 9(4)).

Can I claim ITC on GST paid under reverse charge?

Yes, in most cases. The ITC can be claimed in the same return period. The main exception is residential property rent — no ITC is available. You must hold a valid tax invoice or self-invoice.

Do composition dealers need to pay GST under reverse charge?

Yes, composition dealers must pay RCM on applicable supplies. However, they cannot claim ITC on these payments since the composition scheme does not allow input tax credit.

What is a self-invoice under RCM?

A self-invoice is a document you issue in your own name when receiving supplies from an unregistered person under Section 9(4). It serves as the tax invoice and is required for ITC claims.

Calculate Your RCM Liability

Use the DoAide RCM Calculator to compute your reverse charge liability across multiple services, check ITC eligibility, and get GSTR-3B reporting guidance.Explore all DoAide GST tools →