Indirect Tax Laws · Charge of GST

Reverse Charge Mechanism (RCM) under GST

Updated 5 October 2026 · Fact-checked

Reverse charge mechanism (RCM) shifts the duty to pay GST from the supplier to the recipient. It applies to notified goods and services and to notified supplies from unregistered persons. To solve a question, identify the supply, check the notified entry and the recipient's type, compute the tax, pay it in cash, then claim ITC if eligible.

Understand Reverse Charge Mechanism

Normally the supplier collects GST from the buyer and pays it to the government. This is the forward charge. Under the reverse charge mechanism, the roles flip. The recipient calculates the tax and pays it to the government. The supplier does not charge GST on the invoice.

Why does the law do this? Some suppliers are hard to track or are not registered, for example small farmers, unregistered transporters or individual advocates. If the law relied on them, tax could leak. Making the registered business recipient liable keeps the tax in the net.

RCM arises in three broad situations. First, under section 9(3), notified categories of goods (for example, certain agricultural produce) as listed by the government. Second, under section 9(3), notified categories of services (for example, goods transport agency services, legal services by an advocate, sponsorship, services by a director to a company). Each section 9(3) entry names the class of supplier (for example, an individual advocate or a firm of advocates) and the class of recipient (for example, a business entity, a body corporate or a company). Within that description, the entry applies whether or not the supplier is registered. What matters is that the supply, the supplier and the recipient all fit the entry. Third, under section 9(4), notified categories of supplies made by an unregistered supplier to a registered person. Earlier, this applied broadly to all supplies from unregistered persons. It now works only for the notified categories of goods or services. So you must read the question for the notification detail and not assume it applies to every purchase from an unregistered person.

Imports of services by a person in India from outside India are also taxed on reverse charge basis. The recipient pays IGST.

A few features matter in every question. The recipient must pay RCM tax through the electronic cash ledger, not through ITC. After paying, the recipient can claim ITC, subject to the normal conditions and blocked credit rules. A person who is required to pay tax under RCM is generally required to register under section 24(iii), so the small-supplier threshold does not normally help them. Some exemptions are notified (for example, under Notification 5/2017-CT), so check the facts in the question. The recipient must issue the required invoice and payment voucher for RCM supplies.

Key rules to remember

RCM tax payable: Tax payable by recipient = Value of notified supply × Rate of tax; Use the value and rate given in the question. Split into CGST + SGST for intra-state supplies, or charge IGST for inter-state supplies.
Who pays: Forward charge: Supplier pays. Reverse charge: Recipient pays.; Under RCM the supplier's invoice, if any, shows no GST on that supply.
Mode of payment: RCM tax is paid only from the electronic cash ledger; The input tax credit balance cannot be used to discharge RCM liability.
ITC on RCM: ITC = RCM tax paid, if the conditions for ITC are met and the credit is not blocked; Credit can be claimed only after the tax is paid. If the recipient makes exempt supplies or the credit is blocked, no ITC is available.
Time of supply of goods under RCM: Earliest of: date of receipt of goods, date of payment, date immediately following 30 days from the supplier's invoice date; If it is not possible to determine the time by these means, the date of entry in the recipient's books applies.
Time of supply of services under RCM: Earlier of (a) the date of payment, or (b) the date immediately following 60 days from the invoice date. If the invoice is not issued, the earlier of the payment date or the date of entry in the books.; The date of provision of service is not used. Count the 60 days from the day after the invoice date, then take the next day.
Time of supply of imported services from associated enterprises: Earlier of the date of entry in the recipient's books or the date of payment; This applies to import of services where the supplier is an associated enterprise located outside India.

How to solve Reverse Charge Mechanism questions

Use this order for any RCM question. It stops you from missing either the liability test or the credit consequence.

1Identify the supply. Is it goods or services, and what exactly is the nature of the service (for example, GTA, legal, sponsorship, director's service)?
2Check whether it is a notified category, or a notified supply from an unregistered person. Read the entry's conditions carefully, including who the supplier is and who the recipient must be.
3Check the recipient's status. Many entries apply only to specified recipients such as a registered person, a company or a body corporate. If the recipient does not fit, forward charge or no GST may apply.
4Check whether any exception applies. For example, a GTA that has opted for forward charge, or a supply that is otherwise exempt.
5Determine the place of supply to decide CGST + SGST or IGST. Then compute tax on the value at the given rate.
6Fix the time of supply under the RCM rules and note the due date for payment.
7State that the tax is paid in cash. Then state the ITC position and any compliance such as the invoice and payment voucher.
8Conclude clearly: who is liable, how much, when, and whether credit is available.

Quickest way: Four-question RCM check

When to use it: Use this for MCQs and for the first lines of a written answer when time is short.

Question 1: Is this supply in a notified RCM entry? If no, forward charge applies.
Question 2: Is the recipient of the type the entry names? If no, forward charge or no tax.
Question 3: Compute the tax. CGST + SGST if intra-state, IGST if inter-state, all paid in cash.
Question 4: Is ITC allowed? Yes if the recipient uses the supply for taxable business supplies and the credit is not blocked.

Common mistakes in Reverse Charge Mechanism

Assuming RCM applies to every purchase from an unregistered person.
Older notes and the 'unregistered supplier' idea give a general rule, but the rule has been narrowed.
Fix: Apply RCM only when the supply and the recipient fall in the notified class. Otherwise treat it as an ordinary purchase.
Paying RCM tax by using the ITC balance.
Students treat RCM like normal output tax.
Fix: State that RCM is paid through the electronic cash ledger. Claim ITC separately after payment.
Saying ITC is automatically available.
Students stop once they have paid the tax.
Fix: Always check the ITC conditions. If the supply is used for exempt supplies or falls under blocked credits, there is no credit.
Ignoring the recipient condition in the notified entry.
Students remember the service name but not who the recipient must be.
Fix: For each entry, write down both supplier and recipient. For example, legal services by an advocate to a business entity, not to an individual consumer.
Using the supplier's time of supply rules (invoice date or service completion) for RCM.
Forward-charge rules are better known.
Fix: Use the separate RCM time of supply rules for goods and services, with the 30-day and 60-day limits.
Thinking a recipient liable under RCM can always use the small-supplier threshold to avoid registration.
The threshold exemption is remembered as universal.
Fix: A person required to pay tax under RCM is generally required to register under section 24(iii), so the threshold does not normally protect them. Check for any notified exemption in the question before concluding.

Worked examples

Example 1

M/s Rao Traders, a registered trader, makes taxable supplies. In April it receives goods transport service from a GTA that has not opted for forward charge. The freight is ₹50,000 for an intra-state movement. Assume the GTA service attracts 18% GST. The GTA invoice shows no GST. Who pays the tax, how much, and can Rao claim credit?

Show the solution

The supply is GTA service, a notified RCM category. The recipient is a registered person, which fits the recipient condition. The GTA has not opted for forward charge, so RCM applies.
Tax = ₹50,000 × 18% = ₹9,000.
The movement is intra-state, so the split is CGST ₹4,500 + SGST ₹4,500.
Rao must pay the ₹9,000 from the electronic cash ledger, not from the ITC balance.
After payment, Rao can claim ITC of ₹9,000 if the freight relates to taxable business supplies and the credit is not blocked. Here it is a business input service for a taxable trader, so credit is available.

Answer: Rao Traders pays ₹9,000 (CGST ₹4,500 + SGST ₹4,500) in cash under RCM and can claim ITC of ₹9,000.

Example 2

Delta Ltd, a registered company making taxable supplies, receives legal services from an individual advocate. The advocate's invoice is dated 10 January 2027 for ₹2,00,000. Delta pays the fee on 20 March 2027. Assume 18% GST, an intra-state supply. Find the RCM tax and the time of supply.

Show the solution

Legal service by an advocate is a notified RCM service where the recipient is a business entity located in the taxable territory. Delta Ltd is such a business entity, so the recipient pays.
Tax = ₹2,00,000 × 18% = ₹36,000, split as CGST ₹18,000 + SGST ₹18,000.
Time of supply for services under RCM is the earlier of the payment date and the date immediately following 60 days from the invoice date.
Count 60 days from the invoice date of 10 January 2027. Day 1 is 11 January, day 21 is 31 January, day 49 is 28 February, and day 60 is 11 March 2027. The date immediately following is 12 March 2027.
Payment date is 20 March 2027. This is later than 12 March 2027.
The earlier date is 12 March 2027, so time of supply is 12 March 2027.
Delta must pay the tax in cash and may then claim ITC of ₹36,000 since the service is used for taxable supplies.

Answer: RCM tax is ₹36,000 (CGST ₹18,000 + SGST ₹18,000), the time of supply is 12 March 2027, and Delta may claim ITC after paying in cash.

Exam tips

In case-scenario MCQs, read the recipient's status first. Many options are wrong only because the recipient is an individual or not registered.
In written answers, use provision, facts, conclusion. State the rule, apply it to the facts in a line or two, then give the tax amount.
Always mention that RCM tax is paid in cash and that ITC is claimed separately. Examiners reward this point.
Do not quote rates from memory. Use the rate given in the question and show the CGST and SGST split or IGST clearly.
For time of supply under RCM, write the dates out in a short working. A wrong date costs marks even when the rule is right.

Practice questions from Charge of GST

Reverse Charge Mechanism in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Reverse Charge Mechanism: frequently asked questions

What is the difference between forward charge and reverse charge in GST?

Under forward charge, the supplier collects and pays the GST. Under reverse charge, the recipient pays the GST directly to the government. The supplier's invoice does not show GST on an RCM supply.

Does RCM apply to all purchases from unregistered persons?

No. Section 9(3) covers notified goods and services (for example, GTA, advocate, sponsorship) and applies irrespective of whether the supplier is registered. Section 9(4) covers only notified supplies made by an unregistered supplier to a registered person. A general purchase from an unregistered person is not under RCM unless it is notified, so check the entry in the question.

Can I use ITC to pay RCM tax?

No. RCM tax must be paid from the electronic cash ledger. You can claim ITC on that tax later if you meet the usual conditions.

Do I need to register if I only receive RCM supplies?

Generally yes. A person required to pay tax under reverse charge is generally required to register under section 24(iii), and the small-supplier threshold does not normally help. Some exemptions are notified, for example under Notification 5/2017-CT, so check the facts of the question.