The Reverse Charge Mechanism (RCM) under the Goods and Services Tax (GST) system shifts the responsibility to pay tax from the supplier to the recipient of goods or services. This mechanism is applicable in certain notified cases and is governed under Sections 9(3), 9(4) of the CGST Act, and Section 5(3), 5(4) of the IGST Act.
📌 What is Reverse Charge Mechanism (RCM)?
Under RCM:
- The recipient pays GST directly to the government.
- Input Tax Credit (ITC) can be availed by the recipient (subject to eligibility).
- Applicable for both goods and services under specified notifications.
📚 Categories Where RCM Applies
- Notified goods and services (Section 9(3) / 5(3))
- Supply from unregistered suppliers (Section 9(4) / 5(4))
- Import of goods or services into India
🧾 A. Goods Notified Under RCM (as per Notification No. 4/2017-Central Tax (Rate))
| S.No | Description of Goods | Supplier | Recipient | Effective From |
|---|---|---|---|---|
| 1 | Cashew nuts (unshelled/peeled) | Agriculturist | Registered person | 01-Jul-2017 |
| 2 | Bidi wrapper leaves (Tendu) | Agriculturist | Registered person | 01-Jul-2017 |
| 3 | Tobacco leaves | Agriculturist | Registered person | 01-Jul-2017 |
| 4 | Raw cotton | Agriculturist | Registered person | 15-Nov-2017 |
| 5 | Silk yarn | Manufacturer from raw silk | Registered person | 01-Jul-2017 |
| 6 | Lottery | State Government | Distributor or agent | 01-Jul-2017 |
| 7 | Old/used goods, confiscated/seized goods, scrap | Government/Local authority | Registered person | 13-Oct-2017 |
| 8 | Metal scrap (Chapters 72–81) | Unregistered person | Registered person | 10-Oct-2024 |
| 9 | Mint essential oils (mentha, spearmint, etc.) | Unregistered person | Registered person | 01-Oct-2021 |
🧾 B. Services Notified Under RCM (as per Notification No. 13/2017-Central Tax (Rate))
| S.No | Description of Service | Supplier | Recipient | Notes |
|---|---|---|---|---|
| 1 | GTA (Goods Transport Agency) | GTA | Specified entities (factories, firms, etc.) | Option to pay under forward charge at 12% |
| 2 | Legal services | Individual advocate or firm | Business entity | RCM applies |
| 3 | Sponsorship services | Any person (except body corporates w.e.f 01.04.2025) | Company/firm | RCM |
| 4 | Director services | Director (non-employee) | Company or body corporate | Always RCM |
| 5 | Security services | Non-corporate supplier | Registered person | RCM |
| 6 | Renting of immovable property (Govt to registered person) | Government | Registered person | RCM |
| 7 | Services from an arbitral tribunal | Tribunal | Business entity | RCM |
| 8 | Recovery agent services | Agent | Bank/NBFC | RCM |
| 9 | Insurance agent services | Agent | Insurance co. | RCM |
| 10 | DSA services (non-body corporate) | DSA | Bank/NBFC | RCM |
| 11 | Lending of securities (SEBI) | Lender | Borrower | RCM |
| 12 | Passenger vehicle rental (without 12% invoice) | Non-body corporate | Body corporate | RCM |
| 13 | Services by Govt (excluding court, MPs, etc.) | Govt/local authority | Business entity | RCM |
| 14 | Renting of property by unregistered person | Unregistered supplier | Registered person | From 10-Oct-2024 |
⏰ C. Time of Supply under RCM (Section 12 & 13 of CGST Act)
📦 For Goods (RCM)
Time of supply = earlier of the following:
- Date of receipt of goods
- Date of payment (earlier of entry in books or bank debit)
- 30 days from invoice date
👉 If none of the above, use date of entry in books of account.
🛠️ For Services (RCM)
Time of supply = earlier of:
- Date of payment (booked or debited in bank)
- 60 days from invoice date
👉 If invoice not received, use date of entry in books.
✅ Note: Delay in paying RCM beyond this time results in interest liability under Section 50.
📥 D. RCM on Import of Goods and Services
| Type | GST Paid | Notes |
|---|---|---|
| Import of goods | IGST under Customs Act | Paid at port via Bill of Entry |
| Import of services | IGST under RCM | Recipient liable; applies even if supplier is overseas |
🔁 E. RCM Under Section 9(4) – Supply from Unregistered Persons
Applicable on specified goods/services when:
- Supplied by unregistered persons
- To registered recipients
- Common in real estate (promoters/builders): cement, capital goods, etc.
RCM is limited to certain cases by notification.
✅ F. Compliance Checklist for RCM
| Compliance Step | Description |
|---|---|
| 📄 Self-Invoice | Mandatory for inward RCM supplies |
| 🧾 Payment Voucher | Required for RCM supplies |
| 📥 Cash Payment | RCM tax must be paid in cash, not ITC |
| 🧾 GSTR-3B | Report RCM tax under “Liabilities” and claim eligible ITC |
| 📚 Maintain Records | Document all RCM invoices and payments |
🔧 G. Recent RCM Updates (2024–2025)
- ✅ Metal scrap under RCM (from unregistered) – Effective 10 Oct 2024
- ✅ Rent from unregistered persons to registered – Under RCM from 10 Oct 2024
- ✅ Sponsorship from body corporates – Out of RCM from 01 Apr 2025
