Reverse Charge Mechanism (RCM): Definition, Meaning & Guide for Indian Businesses

RCM is when the buyer pays GST directly to the government instead of the seller. Applies to specific notified services (e.g. legal services, GTA transport) and supplies from unregistered persons.

What is Reverse Charge Mechanism (RCM)?

Under Section 9(3) and 9(4) of the CGST Act, RCM shifts the GST payment obligation from supplier to recipient. Common RCM cases for Indian SMBs: legal services from an advocate, Goods Transport Agency (GTA) freight (unless they opt for forward charge), security services from non-corporate entities, sponsorship to corporates, director sitting fees, and specific items like cashew nuts. Buyer self-invoices, pays GST in cash (no ITC offset allowed for RCM payment), claims that same GST as ITC in the same month. Net cash impact is the interest on funds blocked for 1 month.