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December 19, 2025

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Basics of GST

List of RCM Under GST You Should Know

When India moved to GST, it brought a uniform taxation system for goods and services. Most of the transactions in GST follow a straightforward principle. The supplier collects GST from the buyer and pays it to the government.

However, there is a special exception under GST law known as Reverse Charge Mechanism (RCM). Under RCM, the liability to pay GST shifts from the supplier to the buyer/recipient.

Though this sounds a bit out of the ordinary, it essentially has been brought in to reduce the leakages on taxation and increase transparency, covering those areas that were unorganized earlier.

What Is Reverse Charge Mechanism (RCM) Under GST?

In general, under the normal rules of GST, the person supplying goods or services charges GST and deposits it with the government.

Under Reverse Charge, this liability shifts onto the buyer

Generally, RCM applies to:

Notified goods/services

Purchases from unregistered suppliers

Import of services

This helps expand tax coverage in those sectors where suppliers are small, scattered, or unregistered.

Why Does RCM Exist?

RCM is not random; it is a structured method to improve tax governance.

Key Objectives that lie behind RCM:

1. To avoid tax evasion

Sectors prone to leakage are brought under direct tax monitoring.

2. To broaden tax compliance.

Even if the supplier doesn't pay GST, the recipient can be held liable.

3. To bring unorganized sectors into the tax system

4. To ensure better documentation & transparency.

5. To simplify tax collection for small suppliers

They avoid the compliance burden; the buyer handles GST.

RCM is a tool for the government to ensure every eligible transaction remains taxable.

When does RCM apply?

RCM applies in three main scenarios, namely:

A) On Notified Goods & Services

As listed under law/notifications.

Read here.

B) On Purchases from Unregistered Suppliers

If the recipient is registered and the supplier is not, in select cases.

C) Import of Services

Every import of service will be taxable under RCM automatically.

Goods Covered Under RCM

Though RCM is more common in services, several goods also fall under this list.

Here are the important ones:

Cashew Nuts (Not Shelled or Peeled)

Applicable when purchased from an agriculturist.

Recipient pays GST under RCM.

Tendu Leaves

Widely used in the beedi industry.

Buyer has to pay GST under RCM.

Tobacco Leaves

Supplied by agriculturist to registered buyer → RCM applies

The findings of this study have many practical applications.

Silk Yarn

If purchased from non-factory producers → RCM.

Raw Cotton

When supplied by an agriculturist → GST under RCM.

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Used Vehicles, Scrap & Confiscated Goods Sold by Government

If the government sells such items → then the buyer pays GST.

PSLC - Priority Sector Lending Certificates

Banks purchasing PSLC are required to pay GST under RCM.

During early years, attempts were made in many places to issue banknotes with several denomination values.

Ice-cream, Pan Masala, Tobacco from Unregistered Person

These are high-risk items → RCM ensures controlled taxation.

Services Covered Under RCM

RCM is more widely applied on services.

Let's consider major categories:

GTA — Goods Transport Agency

One of the most common RCM cases.

RCM applies where the recipient belongs to:

Registered businesses

Partnership firm

Company

Cooperative society

Factory

Body corporate

If goods are moved to an unregistered recipient → No RCM.

Legal Services Provided by an Advocate or a Legal Firm

When a business receives legal service → It must pay GST under RCM.

This includes:

Senior advocates

Law firms

Services by Arbitral Tribunal

Registered business receiving arbitration services → Must pay RCM.

Sponsorship Services

When a business receives sponsorship-for events, advertising, etc. → RCM applies.

Example:

A company sponsoring a sports event has to pay GST

Services Supplied by Government/Local Authority to a Business

Examples under RCM:

Licensing

Registration

Approval fees

Exceptions (not under RCM):

Renting of immovable property - forward charge now

Postal services

Aircraft/vessel services

In such a context, colonialism would have served to increase class inequality.

Director Services

When the company pays any remuneration, other than salary, to directors → The company pays GST under RCM.

Example:

Sitting fees

Consultancy costs

Insurance Agent Services

Insurance agent commission is taxable under RCM — to be paid by the insurance company.

Recovery Agents

Services offered to:

Banks

NBFC

Financial institutions

GST under RCM.

Transfer of Development Rights (TDR) /FSI

Real estate projects → RCM payable by developer

Renting of Motor Vehicle

IF:

Supplier is unregistered

The recipient is a body corporate

RCM applies.

Security Services - Manpower Services

If supplied by an unregistered supplier → RCM applies to registered receivers.

Import of Services

Every service imported into India → Automatically under RCM

Example:

The company purchases software consulting from the US → It must pay IGST under RCM.

Copyright transfer by Artists

Including:

Music composers

Photographers

Painters

All writers

If transferred to a business → RCM applies.

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Documentation Required for RCM

Since the supplier doesn’t charge GST, the recipient must maintain proper records.

Recipient shall issue:

Self-Invoice — if supplier is unregistered

Payment Voucher

Also report tax information in:

GSTR-1

GSTR-3B

Input Tax Credit (ITC) Under RCM

Most think that RCM is an additional cost, which is actually not true.

You CAN claim ITC on RCM tax

(If goods/services are used for business)

So, RCM does not always increase cost — it just temporarily affects cash flow.

RCM Rate

Category	GST Rates
GTA	5%
Legal Services	18%
Director Services	18%
Insurance Agents	18%
Security Services	18%

Registration & Compliance

A person liable under RCM has to register under GST even if his turnover is below threshold.

Pros & Cons of RCM

Advantages

Improved compliance

ITC available

Reduces tax leakage

Helps track unorganized sectors

Disadvantages

More paperwork

Cash flow blocking

Need to maintain self-invoice and vouchers

Difference Between RCM & Forward Charge

Basis	Forward Charge	RCM
Who pays GST	Supplier	Recipient
Invoice	Supplier	Recipient
ITC	Available	Available
Applicability	General cases	Notified Supplies

Common Compliance Mistakes.

Not identifying RCM suppliers

Missing self-invoice

Late payment of GST

Not recording RCM in returns

Claiming ITC without paying tax

These can lead to penalties + interest @ 18%

Conclusion

Reverse Charge Mechanism is an important part of the GST framework in India. While most of the GST liabilities are cast upon the suppliers, RCM ensures that specific transactions-where the compliance risk is high-get adequately taxed. RCM demands more accountability on the part of businesses:

Identifying RCM transactions

Paying tax under cash ledger

Maintaining documentation

Claiming ITC However, once implemented correctly, it brings transparency, covers the unorganized sectors, and prevents tax leakage. As a business owner, professional, or even a student learning about GST, understanding RCM helps one avoid penalties and stay compliant.

FAQs

Q1: Who is liable to pay GST under RCM?

Under RCM, the recipients of goods/services are liable to pay GST, instead of the supplier.

Q2: Can ITC be claimed on RCM paid?

Yes, ITC can be claimed on GST under RCM provided the goods/services are used for business purposes and other ITC conditions are met.

Q3: Do I need to raise a self-invoice?

Yes, you must raise a self-invoice if the supplier is unregistered. If the supplier is registered, self-invoice is not required.

Q4: Whether RCM will be payable under ITC?

No, RCM cannot be paid using ITC. RCM must be paid only in cash (through electronic cash ledger).

Q5: Does RCM apply on imports?

Yes, RCM can apply on inputs, input services, and capital goods-if they fall under notified RCM categories.

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