Compliance
Reverse Charge Mechanism (RCM) Under GST
Normally the seller collects GST. Under reverse charge, the buyer pays it directly to the government. This guide covers when RCM applies and how to handle it without creating a liability you missed.
How reverse charge flips the rule
Under normal GST, the supplier collects tax from the buyer and pays it to the government. Reverse charge flips this: for certain notified supplies, the recipient is liable to pay the GST directly, and account for it in their own return. It exists so tax is captured even when the supplier is unregistered or in a sector where collection is hard.
Common RCM situations
- Specific notified goods and services (e.g., goods transport agency services, legal services from an advocate, sponsorship, director’s services to a company)
- Certain purchases from unregistered suppliers, where notified
- Import of services from outside India
You pay it — then you often get it back
The key comfort with RCM is that the tax you pay under reverse charge is usually available to you as input tax credit, provided the purchase is for your business and otherwise eligible. So for most businesses RCM is cash-flow and paperwork, not a permanent extra cost — but you must actually pay it and claim it, in the right periods.
The mistakes that hurt
- Not identifying an RCM purchase (e.g., a transporter or advocate bill) and never paying the tax
- Paying RCM but forgetting to claim the corresponding credit
- Treating RCM tax as if the supplier had already collected it
- Missing RCM on import of services
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