Reverse Charge Mechanism (RCM) Under GST Explained

Under the reverse charge mechanism gst, the buyer pays GST to the government instead of the seller. Normally the supplier collects GST on a sale and deposits it. Under reverse charge (RCM), that responsibility flips to the recipient of the goods or services. You self-account for the tax, pay it in cash, and — where eligible — claim it back as input tax credit.

What is the reverse charge mechanism (RCM)?

The reverse charge mechanism (RCM) is a GST rule where the recipient of a supply, not the supplier, is liable to pay the tax to the government. It applies to specified goods, specified services, and supplies received from unregistered persons. The buyer pays the GST in cash and reports it in their own return.

For example, if Sharma Traders in Jaipur hires a goods transport agency to move stock, the transporter may not charge GST. Instead Sharma Traders calculates the IGST or CGST+SGST itself, pays it to the government, and accounts for it in GSTR-3B.

Forward charge vs reverse charge

The difference is simply who deposits the tax. Here is the comparison:

• Who pays the tax — forward charge: the supplier collects GST from the buyer and pays the government.
• Who pays the tax — reverse charge: the recipient pays GST directly to the government.
• Invoice — forward charge: the supplier issues a tax invoice showing GST.
• Invoice — reverse charge: the supplier's invoice shows no GST (or notes RCM applies); the recipient raises a self-invoice.
• Cash flow — forward charge: buyer pays GST to the supplier, supplier remits it.
• Cash flow — reverse charge: buyer cannot use ITC to pay the RCM liability — it must be paid in cash, then claimed back as credit.
• Applies to — forward charge: most ordinary B2B and B2C supplies.
• Applies to — reverse charge: notified goods/services and purchases from unregistered suppliers.

Which supplies attract reverse charge?

RCM applies to a specific, notified list rather than to everything. As of 2026, commonly covered supplies include:

• Goods transport agency (GTA) services where the transporter has not opted for forward charge.
• Legal services from an advocate or law firm to a business.
• Director services provided to a company (outside the employment relationship).
• Sponsorship services to a body corporate or partnership firm.
• Import of services from a supplier outside India.
• Certain goods such as cashew nuts (unshelled), raw cotton, and others as notified.

This list is set entirely by government notifications and changes from time to time. Do not treat the above as final — confirm the current RCM list for your supply on cbic-gst.gov.in or with your CA before deciding RCM applies.

How to raise a self-invoice under RCM

When you receive a supply under reverse charge from an unregistered supplier (or where the rules require it), you must issue a self-invoice — a document where you act as both buyer and the invoice issuer. Follow these steps:

1. Issue the self-invoice on receipt of the goods or services, with your GSTIN, the supplier's details, description, value, HSN/SAC and the applicable GST rate.
2. Calculate the GST — CGST+SGST for intra-state, IGST for inter-state — on the taxable value.
3. Issue a payment voucher to the supplier at the time you pay them.
4. Report the RCM liability in your GSTR-3B and pay the tax in cash.
5. Maintain records of self-invoices and payment vouchers for audit.

Getting the document format right matters here. Our GST invoice format guide covers the mandatory fields your self-invoice must carry.

Can you claim ITC on tax paid under RCM?

Yes — in most cases the GST you pay under reverse charge is itself eligible as input tax credit, provided the supply is used for your business and is not a blocked credit. There is an important sequence, though.

First, the RCM liability must be paid in cash; you cannot use existing ITC to discharge it. Once you have paid it and reported it in your return, the same amount generally becomes available as ITC in the same or following period, subject to the usual conditions and your GSTR-2B. So RCM is often cash-flow neutral over time, but it does tie up cash briefly.

Confirm eligibility for your specific supply with your CA, since some RCM supplies (for example, certain services used for exempt output) may not give full credit.

This article is part of our GST guide for small businesses. Invodo helps you raise compliant self-invoices and tax invoices in seconds, with the right GST split and HSN/SAC built in. Try our free invoice generator to create a clean, GST-ready document — including RCM notes — without the spreadsheet headache.