Reverse Charge Mechanism (RCM) is an important concept under the Goods and Services Tax (GST) system. It is a process where the responsibility to pay tax is shifted from the seller to the buyer. RCM is applied when goods or services are bought from unregistered suppliers or in certain specified cases.
Usually, the supplier is the one who pays tax on the supply of goods or services. But under RCM, this responsibility is transferred to the recipient, meaning the buyer must pay the tax instead. This happens because the tax liability gets reversed.
The main purpose of RCM is to increase the scope of taxation by covering various unorganized sectors. It also helps in exempting certain types of suppliers and ensuring that services imported from outside the country are taxed properly.
Example
A GST-registered dealer purchases goods worth INR 10,000 from a supplier who is not registered under GST. In this case, the dealer must create a self-invoice for the purchase and pay INR 1,200 as GST under the Reverse Charge Mechanism (RCM), assuming the tax rate is 12% of INR 10,000. This INR 1,200 is split into INR 600 as Central GST (CGST) and INR 600 as State GST (SGST) if it is an intra-state purchase. However, if it is an inter-state purchase, the dealer must pay the full INR 1,200 as Integrated GST (IGST).
RCM can be a complicated topic, as many factors need to be considered to determine whether it applies in a specific situation. If you are not sure whether RCM applies to you, it is always best to consult a tax professional for proper guidance.
In the next section, we will look into the different types of reverse charge mechanisms under GST.
Types of Reverse Charge Mechanism
Under RCM, the liability to pay GST is shifted from the supplier to the recipient (buyer) of goods or services. It means that the recipient is responsible for calculating, reporting, and paying the GST to the government on behalf of the supplier. RCM is applicable in the following scenarios.
1. Specified goods and services: section 9(3) of CGST Acts and sections 5(3) of the Integrated GST Act The government may specify certain goods and services for which RCM is applicable, even if the supplier is registered.
2. Purchase from an unregistered dealer: section 9(4) of the CGST act and sections 5(4) of the Integrated GST Act When a registered taxpayer purchases goods or services from an unregistered supplier, the recipient is required to pay GST under RCM.
3. E-commerce operator-based RCM: Section 9(5) of the CGST Act and sections 5(5) of the Integrated GST Act In this type of RCM, the liability to pay GST is shifted to the e-commerce operator when goods or services are supplied through an e-commerce platform. E-commerce operators are responsible for collecting and remitting the GST on behalf of the suppliers registered on their platform.
Reverse Charge List of Goods
These are the goods on which GST has to be paid under Reverse Charge Mechanism (RCM):
1. Cashew nuts that are not peeled or shelled.
2. Bidi wrapper leaves (Tendu leaves).
3. Tobacco leaves.
4. Silk yarn.
5. Raw cotton.
6. Lottery supplied by the State Government, Union Territory, or any local authority.
7. Used vehicles, seized and confiscated goods, old and used goods, waste, and scrap supplied by the Central Government, State Government, Union Territory, or any local authority.
Purchases from Unregistered Dealers:
When a dealer who is registered under GST buys goods or services from a supplier who is not registered under GST, then the responsibility to pay GST shifts from the seller to the buyer. This system is known as the Reverse Charge Mechanism (RCM).
In such cases, the registered buyer has to pay GST directly to the government, instead of the unregistered seller paying it. The buyer must also prepare a self-invoice for that purchase and then pay GST under RCM. The type of GST that needs to be paid depends on the nature of the transaction:
For an inter-state transaction (from one state to another), the buyer has to pay Integrated GST (IGST)
For an intra-state transaction (within the same state), the buyer has to pay both Central GST (CGST) and State GST (SGST).
It is also important to know that RCM does not apply to every small purchase made from
unregistered dealers. The government has given an exemption for purchases up to ₹5,000 per day. This exemption is valid for all types of purchases, whether they are goods or services.
Landmark Case Law
Gujarat Ambuja Cement Ltd. v. Union of India, 2006 (3) S.T.R. 608 (Supreme Court of India)
In this landmark case, the Supreme Court upheld the constitutional validity of the reverse charge mechanism for service tax. The court ruled that the government has the authority to
impose the liability of paying tax on the service recipient instead of the service provider, validating the legality of RCM under Indian taxation law.
Latest Case Law (2025)
Devendra Kumar Singh Contractor vs. Union of India, 2025 [Allahabad High Court] In this recent ruling, the Allahabad High Court clarified that an agreement between the supplier and recipient stating that the supplier will pay GST does not relieve the recipient from liability under the reverse charge mechanism. The court held that statutory provisions under Section 9 of the CGST Act override any private agreements, and the registered recipient remains liable for GST payment under RCM.
These cases represent foundational authority and the latest judicial interpretation affirming the application and legal backing of RCM under India’s GST law.
Time to Supply of Goods Under RCM
In the Reverse Charge Mechanism (RCM), the time of supply of goods means the point at which GST becomes payable. It is decided by the earliest of the following dates:
- Date of receiving the goods – the day when the buyer actually gets the goods.
- Date of payment – if the buyer makes the payment for the goods, then the date of payment will be the time of supply.
- 30 days from the date of the invoice – if the supplier issues an invoice, then the time of supply will be taken as 30 days from the date mentioned in the invoice (if earlier dates are not available).
Date of Payment is further explained as whichever happens earlier between these two events:
1. The date when the buyer’s bank account is debited (as shown in the bank statement).
2. The date when the buyer records the payment in their books of accounts So, the time of supply under RCM is fixed based on whichever of these events happens first.
Time to Supply of Services Under RCM
In the Reverse Charge Mechanism (RCM), the time of supply of services is the date on which GST has to be considered payable. It is decided based on the earliest of these two events:
60 days from the date of invoice – if the supplier gives an invoice for the services, then the time of supply will be counted as 60 days from the invoice date.
Date of payment – if the buyer (recipient) makes the payment for the services, then the time of supply will be the actual date of payment.
The date of payment is taken as whichever of the following happens first:
1. The date when the buyer’s bank account is debited (as shown in the bank statement).
2. The date when the buyer records the payment in the books of accounts.
Example: If a supplier issues an invoice on 1st January 2023, and the buyer makes payment on 1st March 2023, then the time of supply will be 1st March 2023 (since the payment date comes before the 60-day limit).
Self-invoicing under RCM
Section 31 of the Central Goods and Services Tax Act, 2017 (CGST Act) says that when a
registered buyer has to pay GST under the Reverse Charge Mechanism (RCM), the buyer can prepare an invoice by themselves. This is called a self-invoice.
The self-invoice must include all the details that are normally required in a regular GST invoice, such as:
- The GSTIN (GST Identification Number) of both the buyer and the seller.
- The invoice number.
- The date of the invoice.
- A description of the goods or services supplied.
- The quantity and the rate.
- The amount of GST charged.
- It is important to understand that a self-invoice is only for GST compliance purposes. It does not act as a legal document and does not create any kind of liability for the unregistered seller. The responsibility to pay GST under RCM is completely on the registered buyer
Compliance Guidelines for RCM
1. Record keeping:-Every registered person under GST must maintain proper records of all supplies (goods or services) on which GST has to be paid under reverse charge.
2. Invoice requirements (Section 31 of CGST Act, 2017 + Rule 46 of CGST Rules, 2017): Each tax invoice must clearly mention whether GST on that supply is payable under reverse charge. The same note must also be written in the receipt voucher and refund voucher if reverse charge is applicable.
3. Payment method: Any GST amount payable under reverse charge has to be paid through the electronic cash ledger (not through the credit ledger). However, once the buyer pays the reverse charge tax, they can claim Input Tax Credit (ITC) if they are otherwise eligible.
4. Advance payments: If an advance payment is made for supplies covered under reverse charge, GST must be paid at that stage itself. The person making the advance payment has to pay tax under reverse charge.
5. Return filing (GSTR-1): All supplies attracting reverse charge must be reported separately, with invoice-level details and rate-wise breakup, in Table 4B of GSTR-1.
Conclusion
The Reverse Charge Mechanism (RCM) under GST is a system where the responsibility to pay tax is shifted from the supplier of goods or services to the buyer. In this case, the buyer has to pay the GST amount directly to the Government of India, instead of the supplier collecting it and paying. One important rule is that under RCM, the buyer (recipient) must make the payment for the supply within 180 days if they want to claim Input Tax Credit (ITC). Since GST is still developing and changing with the needs of the economy, it is very important to stay updated about RCM and other GST rules. This helps in proper compliance and smooth business operations. Whether you are a business owner, a tax consultant, or even a student, having a clear understanding of how RCM works makes it easier to deal with the complexities of India’s GST system.
Overall, the GST Reverse Charge Mechanism is a key part of the tax system, and it needs proper attention and understanding. It also supports the larger aim of creating a simpler and more efficient tax structure in India
Reference
1. https://poonawallafincorp.com/blogs/financial-insights/reverse-charge-under-gst
2. https://themunim.com/reverse-charge-mechanism-under-gst/?utm_source=google&utm_medium=organic&nocac hed=1
3. https://flexiloans.com/blog/reverse-charge-under-gst/#:~:text=The%20Reverse%20Charge%20Mechanism %20(RCM,to%20pay%20the%20tax%20directly.
4. https://blog.saginfotech.com/reverse-charge-mechanism-under-gst
5. https://saral.pro/blogs/reverse-charge-mechanism-rcm/
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