In the ordinary case the supplier collects GST from the customer and pays it to the government. Reverse charge inverts that. The recipient pays the tax directly, on a supply somebody else made to him.
It is not a large part of most businesses by value. It is a disproportionate part of most GST problems, because the obligation sits with the person who did not raise the invoice, and nothing in the ordinary purchase process prompts anyone to think about it.
Two routes into it
Section 9(3), and Section 5(3) of the IGST Act, is the notified list. Certain categories of supply are on reverse charge permanently, whoever supplies them. This is the route that matters in daily practice.
The recurring ones:
- Goods transport agency services, where the GTA has not opted to pay under forward charge. The most common RCM item in Indian business by a distance.
- Legal services from an advocate or a firm of advocates to a business entity.
- Services of a director to the company, in his capacity as director.
- Sponsorship services to a body corporate or partnership firm.
- Import of services, under Section 5(3) of the IGST Act.
- Renting of motor vehicles in specified circumstances, security services from a non-body-corporate, and services of an arbitral tribunal or recovery agent.
- Certain goods including cashew nuts not shelled, tobacco leaves, raw cotton, and silk yarn from specified suppliers.
The list is amended from time to time. The 56th Council package added reverse charge on local delivery services supplied through an electronic commerce operator under Notification 17/2025-Central Tax (Rate), where the underlying supplier is not liable to mandatory registration under Section 22(1). Anyone operating or selling through a delivery platform needs to check the current position rather than a remembered one.
Section 9(4) is the unregistered supplier route. Tax on specified supplies received by specified registered persons from unregistered suppliers is payable by the recipient. This was suspended for a long period and now operates narrowly, notably for promoters in real estate on specified inward supplies. It is not the general sweep-up it was originally drafted as, and treating it that way produces liabilities that do not exist.
The three things that make RCM expensive
It is paid in cash
This is the feature that causes the most surprise. RCM liability cannot be discharged using the electronic credit ledger. It has to be paid in cash, through the electronic cash ledger.
A business sitting on a large accumulated credit balance still writes a cheque for its RCM liability every month. The credit balance is irrelevant to it.
You then take credit of the tax you paid, in the same month you paid it, subject to the ordinary eligibility rules. So the net cost is nil where the credit is available. But the cash goes out first, and for a business with a substantial GTA spend that is a real working capital item that has to be forecast rather than discovered.
Where the underlying supply is one on which credit is blocked, or where it relates to exempt output, the tax is a genuine cost and not a timing difference.
The self-invoice is mandatory and routinely missing
Where you are liable under reverse charge on a supply from an unregistered supplier, Section 31(3)(f) requires you to issue an invoice to yourself. Section 31(3)(g) requires a payment voucher at the time of payment.
This is not a formality. The self-invoice is your document evidencing the supply, and Section 16(2)(a) requires possession of a tax invoice as a condition of taking credit. No self-invoice, no document, and the credit for the tax you have just paid in cash becomes difficult to defend.
It is the most commonly missed RCM obligation, and it is missed for an understandable reason: the entire accounts payable process is built around receiving documents, not creating them. Nothing in the workflow says “generate an invoice to yourself”.
The self-invoice needs the particulars an ordinary invoice needs, and a consecutive series. A monthly consolidated self-invoice covering supplies from unregistered suppliers is permissible and is far more practical than one per transaction.
Where the supplier is registered, as with a GTA or an advocate who is registered, he issues the invoice, marked as attracting reverse charge, and no self-invoice is required.
It forces registration
Section 24(iii) requires any person liable to pay tax under reverse charge to register, regardless of turnover.
This is the trap that catches small businesses and professionals with no other GST exposure. Subscribing to a foreign software service is an import of services, which is on reverse charge under Section 5(3) of the IGST Act. A consultant with ₹8 lakh of receipts, well under any threshold, who pays for a design tool, a cloud service or an overseas advertising platform, is liable under reverse charge and therefore required to register.
Once registered, all the ordinary obligations follow: monthly or quarterly returns, annual return where applicable, and the compliance cost that goes with them, all triggered by a subscription costing a few thousand rupees a month.
Foreign advertising spend, overseas SaaS subscriptions, and payments to offshore contractors and consultants are the three that turn up most often on review.
Time of supply, which is not the invoice date
For goods under reverse charge, the time of supply is the earliest of the date of receipt of goods, the date of payment, or thirty days from the supplier’s invoice date. For services it is the earlier of the date of payment or sixty days from the supplier’s invoice date.
The sixty-day rule is the one that bites. If you have not paid an overseas consultant within sixty days of his invoice, the liability arises anyway on day sixty-one. Waiting for payment is not an option, and a payables ledger with long overdue foreign invoices is quietly accruing RCM liability with interest running.
Where it appears in the returns
RCM liability is declared in the relevant table of GSTR-3B as an outward liability, paid in cash, and the corresponding credit claimed in the input credit table of the same return.
This produces a structural, permanent difference between the credit shown in your GSTR-3B and the credit available in your GSTR-2B, because RCM credit has no supplier behind it and therefore does not appear in the supplier-reported part of 2B.
That difference is a common trigger for a DRC-01C intimation under Rule 88D. It is entirely explicable, but you have to explain it, with figures. A business with regular RCM should keep a standing schedule of its RCM credit by month so the reply takes ten minutes rather than a day.
A short checklist
- List every recurring supply that attracts RCM. GTA, legal, directors, sponsorship, imports of services, security, renting of motor vehicles.
- Flag the ledgers involved so the liability is computed automatically rather than remembered.
- Generate the monthly consolidated self-invoice for unregistered suppliers, and keep the payment vouchers.
- Watch the sixty-day clock on unpaid foreign service invoices.
- Forecast the cash, because credit cannot pay it.
- Keep the monthly RCM schedule ready for the DRC-01C reply you will eventually need to write.
- If you are unregistered and buy any foreign service, check Section 24(iii) before assuming the threshold protects you.
The summary
The recipient pays, in cash, and takes the credit back in the same month. Section 9(3) is the notified list and is where the day-to-day exposure sits. The self-invoice under Section 31(3)(f) is mandatory for unregistered suppliers and is the most missed obligation in the whole area. Time of supply runs sixty days from the supplier’s invoice for services whether or not you have paid. And a single foreign subscription is enough to require registration under Section 24(iii), whatever your turnover.
