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
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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.
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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
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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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