Reverse Charge Mechanism (RCM) in GST — When & How It Applies

RCM catches many Delhi businesses by surprise. I have seen 2+ lakh demand notices from unaware companies.

Under Reverse Charge Mechanism (RCM), the recipient of goods or services pays GST instead of the supplier. This shifts the tax liability to the buyer in specific situations.

When RCM Applies

• Services from unregistered dealer to registered dealer
• Services by advocates, GTA (Goods Transport Agency)
• Security services, directorship services
• Import of services
• Second-hand goods (purchase from unregistered person)

RCM Compliance

• Issue self-invoice for RCM purchases from unregistered dealers
• Pay GST under RCM through electronic cash ledger (cannot use ITC)
• Claim ITC on RCM paid (subject to eligibility)
• Report in GSTR-3B Table 3.1(d) and Table 4

RCM must be paid in cash — you cannot use your ITC balance to pay RCM liability. However, once paid, you can claim ITC on it.