Quick Answer: Under Reverse Charge Mechanism (RCM), the recipient (buyer) pays GST instead of the supplier. RCM applies on specific notified goods/services (e.g., legal services from advocates, goods transport agency services, import of services) and on purchases from unregistered suppliers for notified categories. The buyer must self-invoice, pay GST, and claim ITC if eligible.
Reverse Charge Mechanism — Who Pays the Tax?
Under the normal GST mechanism, the supplier collects and pays GST to the government. Under RCM, this liability is reversed — the recipient pays GST directly to the government. The supplier does not charge GST on the invoice; instead, the recipient self-assesses and pays it via GSTR-3B.
RCM Process in 3 Steps
- Receive invoice from supplier (no GST charged — supplier exempted or unregistered)
- Self-invoice creation — recipient raises a payment voucher / self-invoice for the transaction
- Pay GST and claim ITC — pay through GSTR-3B and simultaneously claim ITC in the same return
Frequently Asked Questions
Yes. RCM GST paid by a registered business is eligible for ITC in the same GSTR-3B in which it is paid. It cannot be offset before payment — you must first pay the RCM GST, then claim it back as credit.
Section 9(4) mandates RCM when a registered person receives supplies from an unregistered supplier. As of 2019, this applies only to specified sectors per government notifications, not all purchases from unregistered suppliers.