Reverse Charge Mechanism (RCM) Under GST, Explained

Normally under GST, the supplier charges tax on the invoice and pays it to the government. The Reverse Charge Mechanism (RCM) flips that for certain supplies: the recipient — the buyer — pays the GST directly to the government instead. The supplier charges nothing for tax; you self-assess, pay in cash, and then, if eligible, claim it back as input tax credit.

RCM exists to bring hard-to-tax sectors into the net and to tighten audit control on specific supplies. For a registered business it is not optional — if a transaction is notified for reverse charge, you must handle it, and missing it is a compliance gap that attracts interest and penalties. This guide explains when RCM applies, the notified list, and exactly how to account for it.

The two provisions: Section 9(3) and 9(4)

RCM comes from two provisions of the CGST Act (with mirror provisions in the IGST Act for inter-state supplies). Section 9(3) covers a government-notified list of specific goods and services where reverse charge always applies, regardless of whether the supplier is registered. Section 9(4) covers certain supplies received from unregistered suppliers — but, importantly, the old blanket "RCM on all purchases from unregistered dealers" is gone; 9(4) now applies only to specifically notified classes (such as certain real-estate procurements by promoters).

For Section 9(3) notified supplies there is no threshold — RCM applies from the first rupee, regardless of transaction value.

The notified list (as of 2026)

The Section 9(3) list is defined by CBIC notifications and changes over time, so it should always be checked against current notifications — but as of 2026 it commonly includes:

• →Goods Transport Agency (GTA) freight services.
• →Legal services from an advocate or firm of advocates to a business entity.
• →Services of a director (in a non-employment capacity) to the company.
• →Security services (supply of security personnel) from a non-corporate entity to a registered person.
• →Renting of motor vehicles in certain cases.
• →Import of services — any service imported from a supplier outside India.
• →Recently notified categories such as metal scrap supplies.

Self-invoicing and payment vouchers

When you receive a notified supply from an unregistered supplier, you must issue a self-invoice — you create the invoice yourself, acting as both buyer and document issuer. This is mandatory under Section 31(3)(f) of the CGST Act. At the time of payment to the supplier, you also issue a payment voucher (Rule 52). Together, the self-invoice, payment voucher and tax challan form the minimum evidentiary package for audit — a challan alone is not enough.

Time of supply: when the RCM liability arises

A subtle but important point is when your RCM liability is triggered — the “time of supply.” For goods under reverse charge, it is the earliest of the date of receipt of goods, the date of payment, or 30 days from the supplier’s invoice date. For services under reverse charge, it is the earlier of the date of payment or 60 days from the supplier’s invoice date. For imported services from an associated enterprise, it can be the date of entry in your books.

Getting this right matters because it fixes the month in which you must declare and pay the RCM — declare it too late and interest runs. For most routine cases (a legal bill, a GTA freight charge), the practical trigger is simply the earlier of when you pay or the 60-day mark.

Goods Transport Agency: the everyday RCM

The most common reverse-charge scenario for ordinary businesses is freight from a Goods Transport Agency (GTA). When a GTA transports your goods and has not opted to pay GST itself under forward charge, you as the recipient pay the GST on the freight under RCM — typically at 5% — and, if the freight relates to your taxable business, reclaim it as ITC. Because freight bills are frequent and individually small, this is exactly the kind of RCM that gets forgotten, quietly accumulating an under-declared liability across a year.

Paying and claiming: how it nets out

RCM has a specific cash-flow characteristic: the tax must be paid in cash through the electronic cash ledger — you cannot use existing ITC to discharge an RCM liability. So even though the credit is claimed back in the same return, you must have the cash to pay it first.

The mechanics in GSTR-3B: report the RCM liability in Table 3.1(d), pay it in cash, and — if the supply is eligible under Section 16 and not blocked under 17(5) — claim it as ITC in Table 4. For a fully-taxable business using the supply in its business, this nets to revenue-neutral: you pay ₹18,000, you reclaim ₹18,000. But both halves must be shown, and the ITC is only available if you actually pay the tax. One more detail: do not report RCM inward supplies in GSTR-1 — that return is for your outward supplies only.

When RCM ITC is not available

Paying RCM does not automatically entitle you to the credit. If the RCM-paid goods or services are for personal consumption, used for exempt supplies, or fall under a Section 17(5) blocked category, the ITC cannot be claimed and the tax becomes a final cost. And where you make both taxable and exempt supplies, RCM ITC is subject to the same Rule 42/43 proportionate reversal as any other credit. Always verify eligibility before assuming an RCM payment is net-neutral.

A worked example

A consultancy in Delhi pays ₹1,00,000 for cloud software to a US provider and ₹50,000 in legal fees to an Indian advocate in the same month. Both are reverse-charge supplies.

On the cloud software (import of services), the consultancy self-charges ₹18,000 IGST under RCM. On the legal fees, it self-charges ₹9,000 (₹4,500 CGST + ₹4,500 SGST). It issues self-invoices for both, and pays the total ₹27,000 in cash through the electronic cash ledger — it cannot use existing ITC to pay this. In the same GSTR-3B, it declares ₹27,000 as RCM liability in Table 3.1(d) and, because both services are used for its taxable consultancy business and neither is blocked, reclaims ₹27,000 as ITC in Table 4. Net effect on tax: zero. Net effect on cash flow: it had to fund ₹27,000 up front and gets it back as credit. And critically — miss either of these and it has an under-declared liability plus lost credit.

Frequently asked questions

Does RCM apply to all purchases from unregistered suppliers? No — the old blanket rule is gone. Section 9(4) now applies only to specifically notified classes; otherwise RCM is the Section 9(3) notified list.

Can I pay my RCM liability using input tax credit? No — RCM must be paid in cash through the electronic cash ledger. You can reclaim it as ITC afterwards if eligible.

Do I report reverse-charge purchases in GSTR-1? No — GSTR-1 is for outward supplies. RCM is declared in GSTR-3B (liability in 3.1(d), credit in Table 4).

Is RCM always net-zero? Only if the supply is used for taxable business and is not blocked under Section 17(5). If it is for personal or exempt use, you pay the RCM but cannot claim the credit.

Do I need a self-invoice for RCM? Yes — for supplies from unregistered suppliers, a self-invoice (Section 31(3)(f)) and a payment voucher are mandatory.

How Deskloc Flow handles reverse charge

Deskloc Flow lets you mark a purchase as reverse-charge, and then books both sides correctly: the liability into GSTR-3B Table 3.1(d) and, where eligible, the reclaim as ITC in Table 4 — net-neutral for a fully-taxable business, but with both halves properly shown. Import-of-services purchases can be flagged for IGST under RCM so the easily-forgotten cloud-software and foreign-consulting liabilities are captured. Because the software tracks it, RCM stops slipping through as if it were an ordinary forward-charge purchase — the single most common RCM mistake.