What is the reverse charge mechanism (RCM)?
Reviewed by Ranga & Company
RCM: Under the reverse charge mechanism (RCM), the buyer of certain goods or services pays the GST directly to the government instead of the supplier, and then claims it as input tax credit if eligible.
At a glance
- Law
- Sections 9(3), 9(4) of the CGST Act and 5(3), 5(4) of the IGST Act
- Payment
- In cash through GSTR-3B; cannot be paid from ITC
- Credit
- Claimable as ITC in the same month, if otherwise eligible
- Paperwork
- Self-invoice for purchases from unregistered suppliers; payment voucher
Common reverse-charge services for businesses
| Service | Who pays GST |
|---|---|
| Goods transport agency (GTA), where GTA hasn't opted for forward charge | Registered business recipient |
| Legal services from an advocate or law firm | Business recipient |
| Sponsorship services | Business recipient |
| Residential dwelling rented to a registered person | The registered tenant |
| Commercial property rented by an unregistered landlord to a registered person | The registered tenant |
| Director's services to a company | The company |
Common mistakes
- Missing RCM on rent paid to an unregistered landlord for your shop or office
- Paying RCM liability out of ITC instead of cash
- Not issuing a self-invoice for the RCM purchase
Frequently asked questions
Can I pay reverse charge GST using input tax credit?
No. RCM tax must be paid in cash through GSTR-3B. You can then claim it back as ITC if the purchase is eligible.
Is GST payable under RCM on office rent?
Yes, if a registered business rents commercial property from an unregistered landlord, or rents a residential dwelling, the tenant pays GST under RCM.
Do composition dealers pay RCM?
Yes. Composition dealers must pay tax on reverse-charge purchases at the normal rate and cannot claim credit for it.
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