RCM Under GST: Who Pays, When to Pay, and How to Claim ITC Back

Under normal GST, the supplier collects tax and pays it to the government. Under Reverse Charge Mechanism — RCM — that obligation flips. The recipient pays the GST directly to the government, not to the supplier. If you have never checked whether RCM applies to your purchases, there is a good chance you have an undeclared liability sitting in your books.

Two Types of RCM Under GST

Section 9(3) RCM — Notified categories of supply. Certain specific services and goods are always under RCM regardless of who the supplier is, as long as the recipient is registered. The government issues a notification listing these categories. The supplier does not charge GST on these — you pay it yourself in your GSTR-3B.

Section 9(4) RCM — Purchases from unregistered suppliers. If a registered taxpayer buys taxable goods or services from an unregistered person, RCM applies on those purchases. This section had a complex history — it was broadly applicable, then suspended, then revived with a revised structure. Currently it applies to specific notified categories of goods and services bought from unregistered suppliers.

Key Services Under Section 9(3) RCM That Most Businesses Miss

Goods Transport Agency (GTA): If a GTA transports your goods by road and issues a consignment note, you must pay GST at 5 percent (without ITC) or 12 percent (with ITC) under RCM — unless the GTA opts to pay GST themselves under forward charge. Confirm which option your GTA has chosen at the start of each financial year. Many businesses pay a GTA, never check this, and accumulate undeclared RCM liability.

Legal services by an advocate: Any fees paid to an individual advocate or a firm of advocates is under RCM at 18 percent. If you pay your lawyer Rs 1 lakh as fees, you must deposit Rs 18,000 GST under RCM. The advocate does not charge GST — you self-invoice and pay.

Sponsorship services: If you pay any person to sponsor an event, the recipient — not the sponsor — is liable to pay GST under RCM at 18 percent.

Import of services: Any service imported from outside India by a registered person is taxable under IGST under RCM — regardless of whether the foreign supplier is registered or not.

How to Pay RCM

RCM liability must be paid entirely in cash — through your Electronic Cash Ledger. You cannot use ITC to pay RCM liability. This is a critical point that many businesses get wrong. Paying RCM through ITC is treated as non-payment, attracting interest under Section 50 at 18 percent per annum.

Declare RCM liability in Table 3.1(d) of your GSTR-3B. Pay it in cash. Then the ITC on that RCM payment is available from the same tax period and can be claimed in Table 4(A)(3) of GSTR-3B — provided you are entitled to ITC on that category of supply.

Can You Claim ITC on RCM Paid?

Yes — in most cases. If the inward supply on which you paid RCM is used for your taxable business, you can claim back the GST you paid as ITC in the same month. So effectively, the cash outflow is only a timing issue in most scenarios — you pay cash in Table 3.1(d) and claim it back in Table 4(A)(3) in the same GSTR-3B. But GTA at 5 percent rate option means no ITC, and services blocked under Section 17(5) do not give ITC even on RCM.

Key Takeaway

RCM is not optional. If you pay a GTA, an advocate, or import services, check your RCM liability every single month. The interest and penalty on undeclared RCM adds up fast — and it is one of the first things a GST auditor checks. Use gstvala.com for RCM calculators and compliance guides. Consult your CA before filing if RCM positions are complex.