Reverse Charge Mechanism (RCM): common cases for businesses

Under RCM the recipient pays the GST. Common entries include GTA (in specified cases), legal services by advocates, director services, sponsorship and certain rentals. Self-invoicing rules also apply.

Two routes

• Section 9(3): notified categories of goods and services where the recipient pays tax (Notification 13/2017-Central Tax (Rate) for services, 4/2017 for goods, as amended).
• Section 9(4): supplies from unregistered persons to notified classes of registered persons (currently limited, e.g. specified cases in the real-estate sector).

Common service entries under 9(3) (to business recipients)

• Goods Transport Agency services to specified recipients, where the GTA has not opted to pay tax under forward charge.
• Legal services by an individual advocate or firm of advocates to a business entity.
• Services by a director to the company or body corporate.
• Sponsorship services to a body corporate or partnership firm.
• Renting of residential dwelling to a registered person (entry 5AA).
• Renting of commercial property by an unregistered person to a registered person (entry 5AB, from 10 October 2024). Composition taxpayers were excluded from 16 January 2025 (Notification 07/2025-CT(Rate)).

Compliance points

• RCM tax must be paid in cash (electronic cash ledger). ITC of it can then be taken if otherwise eligible.
• When buying from an unregistered supplier under RCM, the recipient issues a self-invoice (Section 31(3)(f)) within the time prescribed in the Rules, plus a payment voucher.
• Report RCM liability in GSTR-3B Table 3.1(d).