Normally the supplier collects GST and pays it to the government. Under the reverse charge mechanism (RCM), that flips: the recipient pays the tax directly. RCM comes with its own paperwork — most notably the self-invoice — that trips up many businesses.
How RCM works
Under RCM, for notified supplies:
- The supplier does not charge GST on the bill.
- The registered recipient calculates and pays the GST directly to the government (in cash, not via ITC).
- The recipient can then usually claim that tax as ITC, subject to the normal conditions.
So the tax still reaches the government — just through the buyer instead of the seller.
Two RCM triggers
RCM applies in two broad situations:
- Section 9(3) — notified supplies: specific goods and services the government has listed for reverse charge, regardless of who the supplier is.
- Section 9(4) — supplies from unregistered persons: specified supplies received by a registered person from an unregistered supplier.
Common supplies under reverse charge
Frequently encountered RCM supplies include:
- Goods Transport Agency (GTA) services (to specified recipients)
- Legal services by an advocate or firm of advocates to a business
- Director’s services to a company (other than in the course of employment)
- Sponsorship services to a body corporate or firm
- Import of services
- Security services (manpower) by a non-body-corporate to a registered person
- Specified goods such as cashew nuts (unshelled), certain tobacco leaves, etc.
The self-invoice
Here is the part people miss. When a registered recipient receives an RCM supply from an unregistered supplier, the recipient must issue a self-invoice — because the supplier, being unregistered, cannot issue a tax invoice.
Under Section 31(3)(f) and the rules, the recipient:
- Issues a self-invoice for such inward supplies (can be consolidated for a month for supplies from unregistered persons), and
- Issues a payment voucher at the time of making payment to the supplier.
The self-invoice looks like a normal tax invoice but is raised by the buyer, recording the supplier’s details, the value, and the GST payable under RCM.
Documents at a glance
| Document | Issued by | When |
|---|---|---|
| Self-invoice | Recipient | On RCM supply from an unregistered person |
| Payment voucher | Recipient | When paying the supplier |
| Tax invoice (marked RCM) | Registered supplier | When a registered supplier makes an RCM supply without charging tax |
Paying and claiming the tax
- RCM liability must be discharged in cash — you cannot use ITC to pay the RCM tax itself.
- Once paid, the same amount is generally available as ITC (if the inward supply is for business use and other conditions are met).
- Report RCM liability in GSTR-3B (inward supplies liable to reverse charge) and claim the corresponding ITC in the eligible section.
A quick example
A company pays an advocate ₹50,000 for legal services (RCM applies):
- The advocate bills ₹50,000 with no GST, noting RCM applies
- The company pays GST @ 18% = ₹9,000 in cash to the government under RCM
- The company issues the relevant documentation and claims ₹9,000 as ITC (subject to conditions)
The bottom line
Under RCM the recipient pays GST directly — in cash — and usually claims it back as ITC. Remember the paperwork: a self-invoice for RCM supplies from unregistered persons and a payment voucher on payment. Track RCM on your purchases carefully; it is a common audit gap.
For the full context of reverse charge, ITC and returns, read the GST Guide for Small Businesses.