GST Reverse Charge Mechanism (RCM) – Rules, ITC & ISD Explained

Reverse Charge Mechanism (RCM) under GST – Complete Guide with Rules, ITC & ISD Treatment

What is Reverse Charge Mechanism (RCM) in GST?

Under the normal GST system, the supplier collects GST from the recipient and pays it to the Government. However, under the Reverse Charge Mechanism (RCM), this responsibility is shifted from the supplier to the recipient of goods or services.

In simple words: Supplier does not charge GST. Recipient pays GST directly to the Government.

Legal Provisions Governing RCM

RCM is governed by the following provisions of GST law:

• Section 9(3) of the CGST Act, 2017
• Section 9(4) of the CGST Act, 2017

Section 9(3)

RCM applies to notified goods and services as specified by the Government.

Section 9(4)

RCM applies to specified supplies received from unregistered persons, only in notified cases.

When is RCM Applicable?

RCM is applicable when all the following conditions are satisfied:

• Supply is notified under GST law
• Supplier and recipient are located in India
• Supply is taxable under GST
• Recipient is registered under GST

Services Covered under RCM (Section 9(3))

Notification: 13/2017 – Central Tax (Rate)

Service Description	GST Payable By	GST Rate
Goods Transport Agency (GTA)	Recipient	5%
Legal services by advocate	Recipient	18%
Services by director to company	Company	18%
Sponsorship services	Recipient	18%
Import of services	Recipient	18%
Renting of motor vehicle (specified cases)	Recipient	18%
Security services (manpower supply)	Recipient	18%
Recovery agent services	Bank / NBFC	18%

Goods Covered under RCM

Notification: 4/2017 – Central Tax (Rate)

Goods RCM Applicable GST Rate Cashew nuts (not shelled) Yes 5% Tobacco leaves Yes 5% Silk yarn Yes 5% Used vehicles (specific cases) Yes 28%

RCM under Section 9(4) – Unregistered Supplier

RCM under Section 9(4) now applies only to notified cases, mainly in:

• Real estate sector
• Supplies received by promoters

Notification: 07/2019 – Central Tax (Rate)

Payment of GST under RCM

RCM tax must be paid in cash only. Input Tax Credit cannot be used to discharge RCM liability.

Legal Reference: Section 49(4) CGST Act

Input Tax Credit (ITC) on RCM

Once GST is paid under RCM:

• ITC becomes eligible
• ITC can be claimed in the same tax period

Conditions under Section 16:

• Tax must actually be paid
• Goods or services must be received
• Used for business purposes

Time of Supply under RCM

For Goods – Section 12(3)

Time of supply is the earliest of:

• Date of receipt of goods
• Date of payment
• 30 days from the supplier invoice date

For Services – Section 13(3)

Time of supply is the earliest of:

• Date of payment
• 60 days from invoice date

Accounting Entries for RCM

Example: Legal service value ₹10,000, GST @18% = ₹1,800

RCM Payment Entry

Legal Expense A/c Dr. ₹10,000
RCM CGST A/c Dr. ₹900
RCM SGST A/c Dr. ₹900
      To Cash / Bank A/c ₹1,800

ITC Claim Entry

Input CGST A/c Dr. ₹900
Input SGST A/c Dr. ₹900
      To RCM CGST A/c
      To RCM SGST A/c

Treatment of RCM under ISD

ISD cannot pay RCM tax. It only distributes eligible ITC to branches under Rule 39 CGST Rules, 2017.

Practical Flow: RCM + ISD

1. Head Office receives RCM service
2. Head Office pays GST in cash under RCM
3. HO claims ITC
4. ITC distributed to branches via ISD

Distribution of RCM ITC through ISD

• RCM ITC is an eligible credit
• Distributed under Rule 39(1)(c)
• Units under the same PAN
• Proportional distribution based on turnover

Common Mistakes in RCM Compliance

• Paying RCM tax using ITC
• Claiming ITC without payment
• Incorrect time of supply
• Showing RCM in GSTR-1
• Paying RCM through ISD registration

Reporting of RCM in GST Returns

Return	Reporting
GSTR-1	Not reported
GSTR-3B	Table 3.1(d)
GSTR-2B	Not auto-reflected

Conclusion

RCM is one of the most technical areas under GST. Correct understanding of:

• Applicable sections
• Notified services
• Time of supply
• ITC eligibility
• ISD treatment

is essential to avoid interest, penalties, and compliance issues.

Important Sections, Rules & Notifications – Summary

Provision	Purpose
Section 9(3)	Notified RCM supplies
Section 9(4)	URD supplies
Section 12(3)	Time of supply – goods
Section 13(3)	Time of supply – services
Section 16	ITC eligibility
Section 49(4)	Cash payment
Rule 39	ISD mechanism
Notification 13/2017	RCM services
Notification 4/2017	RCM goods

 Hope this article helps you to understand RCM.