Reverse Charge Mechanism (RCM) in GST: Rules and Examples

Reverse Charge Mechanism (RCM) flips who pays GST. Learn when RCM applies, key notified supplies, compliance steps and ITC eligibility.

What is reverse charge?

Normally the supplier collects GST and pays it. Under RCM, the recipient pays GST directly to the government — the supplier issues a tax-free invoice. RCM is used to bring unregistered suppliers into the tax net.

When RCM applies

Notified supplies (services from advocates, GTA, directors). Imports of services. Purchases from unregistered persons (in certain notified cases). Notified goods like cashew, tendu leaves, raw cotton.

Compliance steps for the recipient

Self-invoice the purchase under RCM. Report the supply in GSTR-3B Table 3.1(d). Pay tax in cash (not through ITC). Claim ITC on the same RCM tax in the next month, provided it's used for business.

Common pitfall

Many small businesses forget to self-invoice for advocate services or freight (GTA). Missing RCM compliance can trigger 100% penalty + 18% interest. Set up an automatic alert in your billing software for known RCM expense categories.

Quick tip

BillBabu lets you tag a vendor as "RCM applicable" once — every future purchase auto-flags for self-invoice and RCM payment, with the right ITC entry in your reports.

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