Reverse charge mechanism
RCM
Reverse charge means the recipient pays the GST to the government instead of the supplier collecting it, which applies to specified supplies and to most imports of services.
Normally the seller collects tax and remits it. Reverse charge inverts that for cases where collecting from the supplier is impractical — an unregistered supplier, a goods transport agency, a lawyer, or a service provider sitting outside India with no Indian registration.
The practical effect is that you pay the tax in cash and then claim it back as input tax credit, usually in the same period. It is broadly cash-flow neutral, but only if you notice the liability. A business that simply books an overseas software subscription as an expense and moves on has an unrecorded GST liability accumulating quietly.
Reverse-charge liability cannot be paid out of existing input tax credit. It must be paid in cash, which is the detail most often missed.
Key facts
- Applies to notified goods and services, and to import of services.
- The liability must be discharged in cash; it cannot be set off against existing ITC.
- Credit for the tax paid under RCM is generally available in the same period.
- A self-invoice is required where the supplier is unregistered.
- Common triggers: goods transport agency, legal services, director's remuneration, imported software services.
Who this affects
Registered recipients of notified supplies. Buying advertising or software from an overseas vendor is the most common trigger for a small business.
Reviewed September 2026. This is general information about how these rules work, not tax or legal advice, and thresholds and due dates do change. Check your own position with your chartered accountant before acting on it.