Reverse Charge Mechanism (RCM) Under GST: When the Buyer, Not the Seller, Pays the Tax

For a specific list of purchases, GST liability shifts to you as the recipient — here’s when it applies and how to actually pay it

Published: September 12, 2026 · Last updated: September 12, 2026

Normally the seller collects GST from the buyer and deposits it with the government. Under the Reverse Charge Mechanism, that flips: the recipient of specified goods or services pays the GST directly, instead of the supplier charging it. It’s not an extra tax — you generally get it back as input tax credit — but it is a real compliance step and a genuine, if temporary, cash-flow cost.

Two Ways RCM Gets Triggered

1. Notified goods and services (Section 9(3)). A fixed list of categories is always under RCM regardless of the supplier’s registration status — this is the version businesses run into most often.

2. Purchases from unregistered suppliers (Section 9(4)). This provision was originally much broader but has been narrowed considerably over time and now applies mainly to specific notified cases (such as promoters procuring construction inputs for real estate projects) rather than as a blanket rule on all unregistered-supplier purchases. Don’t assume the old blanket version still applies — check current notifications.

Common Categories Under Section 9(3)

Service / Supply	Who pays under RCM
Goods Transport Agency (GTA) services	Recipient, if the GTA hasn’t opted to pay under forward charge
Legal services from an advocate or law firm	Business recipient
Services by a director to their company	The company
Sponsorship services	The recipient body/company being sponsored
Import of services from outside India	The Indian recipient
Security services (non-body-corporate supplier to a registered recipient)	Recipient, per specific notification

How to Calculate and Pay It

Under RCM, you self-invoice for the purchase (since the supplier isn’t charging GST on their invoice), calculate tax at the applicable rate, and pay it — critically — through your electronic cash ledger, not by netting it against existing ITC balance. This is the single most common RCM compliance mistake: businesses try to adjust RCM liability against available input credit instead of depositing cash, which triggers interest on late payment even though the return shows a nil net position.

Once paid in cash, the RCM amount is generally available to claim back as your own ITC in the same or a later return, assuming the purchase itself is for an eligible business use (not a blocked category).

A Worked Example

A manufacturer hires a GTA to move ₹50,000 worth of freight, and the GTA has not opted to charge GST under forward charge. The manufacturer self-assesses RCM at 5% (the standard GTA rate where the transporter hasn’t opted for ITC-eligible forward charge): ₹2,500, paid via the cash ledger, split as CGST/SGST or IGST depending on whether the move was intra- or inter-state. In the same return period, the manufacturer claims that ₹2,500 back as ITC, since freight for business goods is an eligible input service. Net cost: zero, once the credit is claimed — but the cash had to move first.

ITC on RCM Payments

Tax paid under RCM is generally eligible for ITC if the purchase is for business use and not in a blocked category — but the credit has to be claimed by whoever actually paid the RCM tax, based on the self-invoice, not through the normal GSTR-2B supplier-matching process, since there’s no supplier-side invoice to report in the first place.

Common Mistakes

Forgetting to self-invoice — RCM liability doesn’t disappear just because the supplier’s invoice doesn’t mention GST.
Netting RCM against existing ITC balance instead of paying in cash — the most frequent and easily-avoided compliance error.
Missing categories that don’t look like typical “vendors” — director’s fees, sponsorship arrangements, and legal retainers are the ones businesses most often overlook, since the counterparty is an individual rather than a conventional registered supplier.

Quick Questions

Does RCM apply to every purchase from an unregistered supplier?
No — the old blanket rule has been narrowed to specific notified situations. Most day-to-day purchases from unregistered small vendors don’t trigger RCM today.

Can I use existing ITC balance to pay RCM liability?
No — RCM must be paid in cash through the electronic cash ledger, even if you have unused ITC sitting in your credit ledger.

Is RCM an extra cost on top of normal GST?
Not permanently — it’s a timing and compliance shift. You pay it in cash, then generally reclaim it as ITC if the purchase qualifies, so the net cost is typically zero once the credit is claimed correctly.

Do I need to issue an invoice to myself under RCM?
Yes — a self-invoice is required when the supplier doesn’t issue a tax invoice with GST charged, which is the whole basis for calculating and reporting the RCM liability.

RCM isn’t a penalty, it’s a collection mechanism for specific categories where the government would rather trust the (usually larger, more compliant) recipient than the supplier to get the tax paid correctly. The compliance cost is real, but the cash cost mostly isn’t, provided you pay it correctly and claim the credit back.