Reverse Charge Mechanism (RCM) in GST: When Buyer Pays the Tax (2026)

What is the Reverse Charge Mechanism (RCM)?

Normally under GST, the supplier collects tax from the buyer and pays it to the government (forward charge). Under the Reverse Charge Mechanism (RCM), this is reversed — the recipient of the goods or services becomes liable to pay GST directly to the government instead of the supplier. RCM is used by the government to bring unorganised sectors into the tax net and to collect tax from imports of services.

The Two Categories of RCM

1. Section 9(3) — Notified Supplies

The government has notified a specific list of goods and services on which RCM always applies, regardless of who the supplier is. The recipient must pay tax on these.

2. Section 9(4) — Supplies from Unregistered Persons

When a registered person receives certain notified supplies from an unregistered supplier, the registered recipient must pay GST under RCM. Currently this is restricted to specified cases (most notably the promoter/builder receiving certain inputs in the real-estate sector).

Common Supplies Under RCM (Section 9(3))

Supply	Supplier	Recipient liable to pay
Goods Transport Agency (GTA) services	GTA	Business recipient (factory, company, registered person)
Legal services	Advocate / firm of advocates	Business entity
Services of a director	Director (in personal capacity)	The company
Sponsorship services	Any person	Body corporate / partnership firm
Import of services	Overseas supplier	Indian recipient
Services by an insurance agent	Agent	Insurance company
Renting of motor vehicle (to a body corporate)	Non-body-corporate	Body corporate

Self-Invoicing Requirement

When you receive a supply under RCM from an unregistered supplier, the supplier cannot issue a GST invoice. The law therefore requires the recipient to issue a self-invoice on the date of receipt, and a payment voucher when paying the supplier. This documents the RCM liability properly.

How RCM Tax is Paid

RCM liability must always be paid in cash — it cannot be set off against ITC. The flow in GSTR-3B is:

1. Declare the RCM liability in Table 3.1(d) — "Inward supplies liable to reverse charge". Only the tax amount (IGST/CGST/SGST) is added to your liability; the taxable value is informational.
2. Pay this amount in cash through the Electronic Cash Ledger when filing GSTR-3B.
3. Important: in Table 3.1(a) (your outward supplies), RCM purchases are not included as your output — RCM is a buyer-side liability, separate from your sales.

Claiming ITC on RCM Paid

The good news: the tax you pay under RCM is generally available to you as Input Tax Credit, provided the inward supply is used in the course of business and is not a blocked credit. The timing rule:

• RCM is paid in the GSTR-3B of the month the liability arises (via Table 3.1(d)).
• The corresponding ITC is claimed in Table 4A(3) — "Inward supplies liable to reverse charge" — which is auto-populated from your GSTR-2B RCM summary.
• The net effect for an eligible business is tax-neutral: you pay RCM in cash and reclaim it as ITC, but the cash outflow and the credit may fall in different months.

Common RCM Mistakes

• Paying RCM using ITC instead of cash — the portal blocks this, but the error is common in manual computation.
• Including RCM purchases in outward supplies (Table 3.1(a)) — they belong only in 3.1(d).
• Forgetting to issue a self-invoice for supplies from unregistered persons.
• Missing the ITC claim in 4A(3) after paying the RCM liability — leaving money on the table.
• Not paying RCM at all on common services like GTA freight or advocate fees.

Practice RCM on IndIaTaxSim

IndIaTaxSim models the complete RCM cycle — recording an inward supply liable to reverse charge, the liability appearing in GSTR-3B Table 3.1(d) (paid in cash), the supplier's 3.1(a) correctly excluding RCM tax, and the ITC auto-populating in Table 4A(3) from the GSTR-2B RCM summary in the following period. It is the clearest way to internalise why RCM is paid in cash yet recovered as credit.