Reverse Charge Mechanism Under explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Under the normal GST mechanism, the supplier collects tax from the buyer and remits it to the government. Under Reverse Charge Mechanism (RCM), this liability is reversed — the recipient pays the tax directly to the government. This applies in situations where the supplier is not registered (or it is impractical to collect) or where the Government has specifically notified certain supplies.
Types of RCM
1. Mandatory RCM under Section 9(3) — Specified Supplies
Government-notified list of goods and services where RCM always applies (even if both parties are registered).
2. RCM on Imports of Services (Section 5(3) IGST Act)
Any import of service into India triggers IGST under reverse charge in the hands of the Indian recipient.
3. Section 9(4) — Notified Procurement from Unregistered Suppliers
Currently limited to notified goods (tobacco, cashew nuts in shell, raw cotton etc.) when procured from unregistered persons.
Key Services Under Mandatory RCM (Section 9(3) Notification)
| Service | Supplier | Recipient (who pays GST) | GST Rate |
|---|---|---|---|
| GTA services (consignment note) | Goods Transport Agency | Factory, registered dealer, company, society, partnership, AOP | 5% (no ITC) or 12% (with ITC) |
| Legal services | Advocate / law firm | Any business entity | 18% |
| Director remuneration | Director (non-employee) | Company | 18% |
| Insurance agent services | Insurance agent | Insurance company | 18% |
| Recovery agent services | Recovery agent | Banking/financial company | 18% |
| Security services (unregistered supplier) | Unregistered security agency | Registered person (not individual) | 18% |
| Renting of motor vehicle | Unregistered person | Body corporate | 5% |
Import of Services — IGST under RCM
- Any service received by an Indian registered person from an overseas supplier (regardless of registration status of overseas supplier)
- Rate: standard IGST rate for that service (18% for most business services)
- Time of supply: earlier of payment to overseas supplier or expiry of 60 days from date of invoice of overseas supplier
- Value: foreign exchange amount converted at RBI reference rate on date of supply
- ITC available if the service is for business purposes and not blocked under Section 17(5)
Compliance for RCM
- Invoice: The recipient must issue a self-invoice (Section 31(3)(f)) for each RCM transaction
- Payment: GST must be paid in cash (electronic cash ledger) — cannot use ITC balance
- Return: RCM payments reported in GSTR-3B (Table 3.1(d)) and GSTR-2B auto-populated
- ITC claim: ITC of RCM paid is available in the same tax period (reported in Table 4(A)(3) of GSTR-3B)
Practical Example — GTA RCM
XYZ Pvt. Ltd. (registered) hires a GTA to transport goods. Invoice from GTA: Rs.1,00,000 (no GST charged as per RCM). XYZ pays Rs.5,000 (5% IGST) as RCM to government. XYZ can claim Rs.5,000 as ITC immediately. Net GST cost = Nil.
Need Expert Help?
Our CA and legal experts at TaxClue are ready to assist you with compliance, filings, and advisory.
Get Free ConsultationKey Facts About Reverse Charge Mechanism Under
- Applies in: All states across India, under the relevant central law.
- Mode: Mostly online via the official government portal.
- Typical timeline: Ranges from a few days to a few weeks depending on the case.
- Non-compliance: May attract penalties, interest or late fees.
- Expert help: TaxClue completes the entire process end to end for you.
What is reverse charge mechanism (RCM) under GST?
RCM under Section 9(3) of CGST Act requires the recipient of specified goods/services to pay GST directly to the government instead of the supplier collecting and remitting it. The supplier issues an invoice without GST.
Who are the main services covered under RCM?
Key RCM services: (1) GTA services (Goods Transport Agency) when recipient is a company/registered person, (2) advocate services to business entities, (3) director services to the company, (4) import of services from overseas suppliers, (5) security services from unregistered person.
Over 90% of compliance penalties in India arise from missed due dates — timely handling can save businesses thousands of rupees each year.
Reverse Charge Mechanism Under: a key compliance topic in Indian tax and corporate law that businesses and individuals must understand to remain compliant.
Related Services & Guides
Why This Matters
Staying compliant with Indian regulations protects your business from penalties, interest and unnecessary legal trouble. It is always wise to maintain proper records and documentation so that any future scrutiny can be handled smoothly. Rules and thresholds in gst are revised periodically, so it helps to review your obligations at the start of each financial year.
Getting Reverse Charge Mechanism Under right the first time saves both time and money. Many businesses seek expert help for Reverse Charge Mechanism Under to stay fully compliant.