Also known as: Reverse Charge · Reverse Charge Mechanism
A GST provision that shifts the obligation to pay tax from the supplier to the recipient — common for transport, legal, and unregistered-vendor purchases.
Reverse Charge Mechanism (RCM) is a provision under Section 9(3) and Section 9(4) of the CGST Act that shifts the liability to pay GST from the supplier (the default) to the recipient. The recipient is required to compute GST at the prescribed rate, pay it in cash through GSTR-3B, and (subject to Section 17(5) restrictions) claim the same amount back as input tax credit.
Section 9(3) RCM applies on a specified list of supplies regardless of the supplier's registration status — Goods Transport Agency (GTA) services, advocate services to a business entity, sponsorship services, services by a director to the company, import of services, and a few others. Section 9(4) is narrower and applies only when a registered person procures specified goods or services from an unregistered person; this is currently active for promoters in real estate and for inputs used in construction of immovable property.
The mechanics are exact: the recipient creates a self-invoice (or a payment voucher in some cases), records the RCM liability in GSTR-3B Section 3.1(d), pays the tax in cash (RCM liability cannot be set off against ITC — it must be paid in cash and then claimed as ITC in the next period), and the corresponding ITC sits in the eligible ITC section.
ReadyBooks.ai detects RCM applicability the moment you record a bill that hits one of the trigger conditions. The self-invoice is generated automatically, the liability lands in 3B, the cash payment is computed, and the ITC entry is created. Audit notices on missed RCM are one of the most common GST disputes — automation here is meaningful.