Normally the supplier collects GST and pays it to the government. Under the reverse charge mechanism (RCM), the recipient pays the GST directly instead.
This guide explains when RCM applies and what it means for your books.
What is reverse charge?
RCM shifts the responsibility to pay GST from the supplier to the recipient for certain notified supplies. The recipient self-invoices where required and pays the tax in cash.
Common RCM cases
- Specified services such as certain goods transport agency (GTA) services and advocate services
- Purchases from unregistered suppliers in notified situations
- Import of services
- Other categories notified by the government from time to time
ITC under RCM
GST paid under reverse charge can usually be claimed as input tax credit if the purchase is used for business and other ITC conditions are met. The tax must be paid in cash first; it cannot be set off using existing ITC.
Key takeaways
- Under RCM, the recipient pays GST instead of the supplier.
- Applies to notified services, some unregistered purchases, and import of services.
- RCM tax is paid in cash, then typically eligible for ITC.
- Check whether RCM applies before assuming the supplier will charge GST.
This guide is general information, not tax advice. GST rules and rates can change with GST Council notifications — verify specifics on the official GST portal or with your CA.
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