Reverse Charge Mechanism (RCM)
The Reverse Charge Mechanism (RCM) is the arrangement where the recipient of a notified supply pays GST directly to the government instead of the supplier collecting it.
Reverse charge flips the normal rule: for goods and services notified under Section 9(3) of the CGST Act — goods-transport agency, legal services from an advocate, director's fees and more — the recipient pays the GST itself. Imports of services are reverse-charged separately, under Section 5(3) of the IGST Act. Section 9(4) is narrower than it sounds: since 2019 it applies only to a notified class of promoters buying from unregistered suppliers. Where the supplier is unregistered, the recipient must self-invoice, pay the tax in cash, and may then claim it as ITC — subject to the usual Section 16 conditions.
RCM applies to specified categories — goods-transport agency services, legal services from advocates, director's fees and more — under Section 9(3) of the CGST Act. Imports of services are reverse-charged separately, under Section 5(3) of the IGST Act, not Section 9(3). Section 9(4) is a narrower, standalone provision: since 1 April 2019 it applies only to a notified class of promoters buying specified goods or services from unregistered persons — it is not a general "buy from an unregistered supplier, pay RCM" rule. Where the supplier is unregistered, the recipient must self-invoice under Section 31(3)(f) and discharges the liability in cash (it cannot be paid from credit).
For reconciliation, RCM is a two-sided entry: an output liability you must remember to pay, and a corresponding ITC you may claim once paid. Where the RCM supplier is registered, the transaction is reported in their GSTR-1 and does flow into your GSTR-2B and auto-populate GSTR-3B — it is a self-invoice on an unregistered supplier, with no counterparty return to report it, that never shows up there. The credit must still clear Section 17(5). Forgetting the liability is a common, interest-bearing error. Since 1 November 2024 the self-invoice must be issued within 30 days of receiving the supply — not necessarily in the same period the liability arises — and the credit can be claimed only in or after the period the self-invoice is raised, never earlier.
The Recoup angle: Recoup detects RCM-liable expenses in your ledgers so the self-invoice, cash payment and matching credit are never missed.