Glossary · GST & Indirect Tax
Reverse Charge Mechanism
Reverse Charge Mechanism (RCM) shifts the GST payment liability from the seller to the buyer for specified categories of goods and services.
Under the Reverse Charge Mechanism, the recipient of goods or services — rather than the supplier — is responsible for paying GST directly to the government. This is the opposite of the normal forward charge where the seller collects GST from the buyer and remits it. RCM applies to: (1) specified goods and services procured from unregistered dealers by registered persons, (2) GTA services, (3) goods supplied through e-commerce operators in certain cases, and (4) specified services like legal, architect, and surveyor services. Registered persons paying under RCM can claim input tax credit (ITC) of the tax paid, subject to restrictions in Section 17(5) of the CGST Act. Failure to pay RCM tax attracts interest at 18% per annum.
Examples
A logistics company registered under GST procures consulting services worth ₹1,00,000 from an unregistered individual consultant. Instead of the consultant charging GST, the logistics company pays ₹18,000 as RCM directly. Another example: a company buys goods worth ₹50,000 from an unregistered trader — it pays RCM on that purchase and can claim ITC if eligible.