Reverse Charge Mechanism (RCM) in GST — Complete Guide 2026

Updated: 3 June 2026 | CGST Act 2017 — Sec 9(3) & 9(4) | Notification No. 13/2017-CT(Rate)

Under Reverse Charge Mechanism (RCM), the recipient (buyer) pays GST directly to the government instead of the supplier. RCM applies mandatorily under Section 9(3) for specified services (legal services by advocate, GTA freight, import of services, sponsorship, security services) and under Section 9(4) for notified purchases from unregistered suppliers. The recipient can claim ITC of RCM-paid GST in the same return period.

RCM

Buyer pays GST — not the supplier
RCM tax must be paid in cash (no ITC set-off for payment). ITC of RCM paid can be claimed back in the same GSTR-3B period.

RCM Applicable Services — Section 9(3) List

The following services attract mandatory RCM regardless of supplier's registration status:

Service	Supplier	Recipient (pays RCM)	GST Rate
Legal services (including representation)	Individual advocate / firm of advocates	Any business entity	18%
Goods Transport Agency (GTA) freight	GTA (transport company)	Factory, registered person, company, society, co-op, dealer of excisable goods	5% (no ITC) under RCM; or 12% (with ITC) if GTA opts in
Sponsorship services	Any person	Company or partnership firm	18%
Government / Local authority services	Central/State Govt, local authority	Any business entity	18% (varies by service)
Import of services	Person outside India (any foreign supplier)	Indian recipient (any registered or unregistered person)	18% IGST (service-specific rate)
Director's remuneration	Director of a company	The company (body corporate)	18%
Security services (personnel supply)	Any person other than a body corporate	Registered person (body corporate)	18%
Renting of motor vehicles (cost + fuel)	Any person other than body corporate	Body corporate	5%
Ocean freight (CIF imports)	Foreign shipping line	Indian importer (for CIF contracts)	5% IGST

How RCM Works — Step by Step

Supplier issues invoice without GST
For RCM services, the supplier issues a tax invoice without charging any GST. The invoice typically mentions "Reverse Charge Applicable" and the description of service. Example: A lawyer sends you a ₹50,000 invoice for legal services — no GST charged on the invoice.
Recipient self-assesses GST liability
The recipient determines the applicable GST rate on the service (e.g., 18% on legal services). On ₹50,000 legal fee: CGST ₹4,500 + SGST ₹4,500 = ₹9,000 total RCM liability. If inter-state, IGST ₹9,000 applies instead.
Pay RCM GST in cash — cannot use ITC balance
The recipient pays the RCM GST liability in cash via GST challan (PMT-06). This cash payment cannot be adjusted against existing ITC balance — it must come from the cash ledger. Create a challan on the GST portal and pay via net banking/NEFT.
Report in GSTR-3B and GSTR-1
In GSTR-3B for the relevant month, declare RCM inward supplies in Table 3.1(d) (inward supplies liable to reverse charge). Also report in Table 4 as ITC claimed. In GSTR-1, report in Table 4B (inward supplies from unregistered persons) or Table 4C.
Claim ITC of RCM paid
After paying RCM GST, the same amount can be claimed as ITC in the same GSTR-3B return period in Table 4(A)(3) — ITC on inward supplies liable to reverse charge. This ITC becomes available in the electronic credit ledger and can be used to offset future GST liabilities.

RCM and ITC — Key Rules

Aspect	Rule
ITC availability	Available in the same month as RCM payment — no deferral required
Payment method	RCM must be paid via cash ledger (PMT-06 challan) — cannot offset with credit ledger ITC
Time limit to claim ITC	By 30 November of next financial year or filing of annual return (GSTR-9), whichever is earlier
Blocked ITC	RCM ITC is blocked under Sec 17(5) if service/goods are for personal use, motor vehicles, food/beverages, etc.
Unregistered recipient	If Indian recipient is unregistered (e.g., import of services for personal use), must register for RCM payments or obtain temporary registration

Frequently Asked Questions

What is Reverse Charge Mechanism (RCM) in GST?

Under normal GST, the supplier (seller) collects GST from the buyer and deposits it with the government. Under Reverse Charge Mechanism (RCM), this liability is reversed — the recipient (buyer) is directly responsible for paying GST to the government, even though the supplier does not charge GST on the invoice. RCM was introduced to bring certain sectors that have difficulty registering under GST into the tax net, and to ensure GST is collected even when dealing with unregistered or exempt suppliers. The recipient who pays RCM can also claim Input Tax Credit (ITC) of the same amount in the same return period, making it broadly tax-neutral for registered businesses — except for cash flow timing differences.

Which services attract Reverse Charge under Section 9(3) of CGST Act?

Section 9(3) specifies services where RCM is mandatory regardless of whether the supplier is registered. Key services include: (1) Legal services by an individual advocate or firm of advocates to a business entity — recipient pays 18% GST. (2) Transport of goods by Goods Transport Agency (GTA) — if GTA does not pay GST at 12%, recipient (consignor/consignee) pays 5% under RCM. (3) Sponsorship services to a company or partnership firm — sponsor pays 18% GST. (4) Services by Government or local authority to a business entity (e.g., renting of immovable property). (5) Import of services from a foreign supplier — Indian recipient pays IGST. (6) Director's remuneration to a company director (treated as supply from director to company). (7) Security services to a registered person. (8) Renting of motor vehicles to a body corporate. The complete and current list is in Notification No. 13/2017-Central Tax (Rate) as amended.

Can ITC be claimed on GST paid under Reverse Charge Mechanism?

Yes. A registered recipient who pays GST under RCM can claim full Input Tax Credit of the RCM-paid GST in the same return period. For example, if you pay ₹10,000 to a lawyer and pay 18% GST (₹1,800) under RCM via challan in August, you can claim ITC of ₹1,800 in your August GSTR-3B. This makes RCM broadly tax-neutral for businesses — you pay GST and immediately get ITC back. However, there is a cash flow impact: you must first pay the RCM GST in cash (not adjust against existing ITC balance), and then claim it back as ITC. Also, ITC is available only if the service/goods are used for business purposes and not blocked under Section 17(5).

Is RCM applicable on purchases from unregistered suppliers?

The original Section 9(4) required registered businesses to pay RCM on all purchases from unregistered suppliers exceeding ₹5,000 per day. This was suspended in 2017 due to compliance burden. As of the current position (2026), Section 9(4) RCM on unregistered purchases applies only to specific notified categories of goods and services — not all purchases. The government has periodically issued notifications bringing specific items under Section 9(4) RCM. For most routine business purchases from unregistered vendors (stationery, repairs, etc.), RCM is not currently applicable. However, for notified services like renting of commercial property from an unregistered landlord (where the landlord is not registered under GST), RCM may apply if notified. Always verify the current CBIC notifications for the specific category of purchase.

How does RCM work for import of services — cloud software, consulting from abroad?

When an Indian business imports services from a foreign supplier — such as cloud software subscriptions (AWS, Google Cloud, Microsoft Azure), foreign consulting fees, or digital marketing services from abroad — the Indian recipient must pay IGST under RCM even if the foreign supplier has no GST registration in India. The tax is computed on the transaction value (amount paid in foreign currency converted to INR at RBI reference rate on date of invoice). The recipient files GSTR-3B and pays IGST under RCM for the month in which the service is received or payment is made, whichever is earlier. ITC of this IGST can be claimed in the same return period. This mechanism ensures that imported digital services are taxed in India at the standard rates (18% for most IT/software services).

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