Most GST follows the simple “supplier collects, supplier pays” model. The Reverse Charge Mechanism (RCM) is the exception — the recipient pays the tax to the government instead. If you’ve ever paid a goods transport agency, hired a lawyer for your business, or received services from a director, you’ve been in RCM territory. This guide walks through when RCM applies, how to issue self-invoices correctly, and the common scenarios.
At a glance
- Two paths into RCM: (1) Specified supplies under Section 9(3) CGST Act / Section 5(3) IGST Act, (2) Supplies from unregistered dealers under Section 9(4) (currently mostly suspended)
- Recipient pays the tax in cash to government — cannot use ITC to offset
- ITC is available to the recipient on RCM tax paid (subject to general ITC rules)
- Self-invoice required under Section 31(3)(f) for purchases from unregistered suppliers
- Reporting in GSTR-3B (table 3.1(d)) and GSTR-1 (table 4B for outward supplies under RCM)
When RCM applies (Section 9(3) — specified supplies)
The government has notified specific supplies where RCM applies regardless of the supplier’s registration status. The most common ones:
Goods transport services from GTAs
When you hire a Goods Transport Agency (GTA) and the GTA hasn’t opted to pay 12% GST itself, the recipient (you) pays 5% GST under RCM. This is the most common RCM scenario for businesses.
Note: From October 2023, GTAs can opt to pay 12% themselves (with full ITC) by filing Annexure V on the GST portal. Check the GTA’s status before defaulting to RCM.
Legal services from advocates / law firms
Services provided by individual advocates, senior advocates, or partnership firms of advocates to a business entity are under RCM. The business pays GST.
Exemption: Services to non-business individuals or to advocates’ own family — NO GST.
Director services to a company
Services provided by a director (in their personal capacity) to the company are under RCM. The company pays GST.
This was clarified by Circular 140/10/2020-GST: only services in personal capacity (sitting fees, commissions). Salary as employee is OUT of GST entirely.
Sponsorship services
When a body corporate or partnership firm pays for sponsorship services, RCM applies — recipient pays GST.
Insurance agent services
Services from insurance agents to insurance companies — insurance company pays GST under RCM.
Other notified supplies
- Services by an arbitral tribunal to a business entity
- Services by Department of Posts (in certain cases)
- Recovery agents to banks/NBFCs/financial institutions
- Author/composer/photographer services to a publisher (in certain cases)
- Renting of motor vehicle to a body corporate (where supplier is non-body-corporate)
- Renting of residential dwelling to a registered person (recent addition)
RCM under Section 9(4) — unregistered dealer supplies
This was the scariest provision when GST was introduced — every supply from an unregistered dealer to a registered person triggered RCM. Compliance burden was enormous.
The provision was suspended in October 2017 and largely remains so. Currently, Section 9(4) RCM applies to:
- Promoters/builders for specific construction inputs (where notified)
- Some other narrowly notified categories
For most regular businesses, you do NOT need to pay RCM on purchases from unregistered suppliers.
Self-invoice — Section 31(3)(f)
When you receive a supply that’s under RCM AND the supplier is unregistered (so they can’t issue a tax invoice), you must issue a self-invoice to yourself. This is the legal foundation for your RCM tax payment and ITC claim.
Mandatory fields per Section 31(3)(f)
A self-invoice must contain:
- Your details (name, address, GSTIN) as the supplier (you’re invoicing yourself)
- Your details as the recipient as well
- A unique consecutive serial number (separate series recommended, e.g., “SELF-2026-001”)
- Date of self-invoice
- Description of the supply received
- HSN/SAC code
- Value of supply
- Rate and amount of tax (CGST/SGST or IGST as applicable)
- Place of supply
- Signature of the recipient (you)
When the supplier IS registered (e.g., GTA)
You don’t need a self-invoice — the supplier issues a normal tax invoice with a clear note that “Tax payable under reverse charge by recipient.” You record the invoice in your books, pay the tax in cash, and claim ITC.
How to record RCM in your books
For each RCM transaction, the journal entry sequence:
1. Booking the expense and creating RCM liability
Expense A/c Dr. ₹10,000
RCM CGST Input A/c Dr. ₹900
RCM SGST Input A/c Dr. ₹900
To Vendor ₹10,000
To RCM CGST Output A/c ₹900
To RCM SGST Output A/c ₹9002. Paying the RCM tax (in cash, via GSTR-3B)
RCM CGST Output A/c Dr. ₹900
RCM SGST Output A/c Dr. ₹900
To Cash/Bank A/c ₹1,8003. Claiming ITC (after RCM tax paid in cash, in same month per Section 16(2)(c))
- The RCM CGST Input and RCM SGST Input are now usable as ITC against your output liability
Critical: RCM tax must be paid in cash through the e-cash ledger in GSTR-3B table 3.1(d). You CANNOT use existing ITC to pay RCM. Only after the cash payment can you claim the resulting ITC.
Common mistakes to avoid
Treating RCM amount as cost. RCM tax paid is generally claimable as ITC (subject to general restrictions). Don’t expense it — track it as input tax.
Forgetting to pay RCM in cash. ITC cannot be used to discharge RCM liability (Section 49(4) CGST). It must be cash. If you forget, you’ll face interest under Section 50.
Issuing combined self-invoice for the month. Self-invoice is per supply, not consolidated. You can have a daily summary self-invoice for low-value purchases (under Rule 46 sub-rule), but per-supply is the norm.
Missing the GSTR-1 reporting. RCM outward (i.e., where YOU issued an invoice to someone but tax is payable by them) goes in GSTR-1 table 4B. Often missed.
Claiming ITC on personal/exempt purchases. RCM ITC follows the same eligibility rules as regular ITC. Personal use, exempt supplies, blocked credits under Section 17(5) — all the usual restrictions apply.
Frequently asked questions
Q: I’m a small business under composition scheme. Do I pay RCM? A: Yes — composition dealers must pay RCM on specified inward supplies in cash, even though they pay flat composition tax on their outward supplies. ITC is NOT available to composition dealers, however.
Q: My GTA charges 12% with ITC. Is that RCM or not? A: Not RCM. The GTA has opted into the forward charge mechanism. They issue a normal tax invoice with 12% GST and you can claim ITC normally.
Q: I paid a lawyer ₹50,000 in fees. Do I pay RCM? A: If you’re a business entity (registered or not, with turnover criteria met), yes — 18% RCM applies. If the legal services are for personal matter, no.
Q: Director’s salary — is that RCM? A: No. Salary is wholly outside GST under Schedule III to CGST Act. RCM applies only to director’s services in personal capacity (commissions, sitting fees, etc.) — not employment relationship.
Q: I’m in the rental business and rented residential property to a registered company. RCM? A: Recent rules — yes. From July 2022, renting of residential dwelling to a registered person attracts GST under RCM (paid by the tenant). This was introduced to plug the loophole of corporate housing rented as residential.
Q: Can I issue a single consolidated self-invoice at month-end for all RCM purchases? A: Per supply is the norm. However, Rule 46 allows consolidated invoice in some cases. Best practice: issue self-invoices on the date of supply for each transaction. It avoids reconciliation headaches at year-end.
Generate compliant invoices
If you’re a supplier whose service falls under RCM (e.g., advocate, GTA opting for RCM), use our Tax Invoice Generator and check the “Reverse Charge Applicable” indicator in your accounting note. The generated PDF includes the standard mandatory fields per Section 31 + Rule 46:
For self-invoices to your own business (when receiving RCM supply from unregistered party), use the same tool — fill your own GSTIN as both seller and buyer, with a separate serial number series like “SELF-2026-XXX”.
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Last updated: April 2026. Reviewed by Practising Chartered Accountants. This guide is for general information only and does not constitute professional advice. RCM compliance has significant cash flow implications — consult a qualified Chartered Accountant for your specific transactions.