RCM is a key change under GST, shifting the tax liability from the supplier to the recipient of goods/services. It helps the government collect tax even in tricky-to-track cases, like unregistered suppliers or industries where evasion is more likely.

• Traditional GST: Tax paid by supplier, collected from the recipient.
• RCM: Tax paid by recipient directly to the government.

Why does it matter?
RCM closes loopholes, making sure that government revenue is protected and compliance is easier to monitor.

Legal Foundation of RCM

RCM under GST is enabled by the following provisions of the law:

• Section 9(3) of the CGST Act, 2017 and Section 5(3) of the IGST Act, 2017 – Government notifies specific categories of supplies where the recipient pays GST.
• Section 9(4) of the CGST Act, 2017 – Certain supplies by unregistered persons to specified classes of registered persons are taxable under RCM (currently relevant for promoters in real estate and some notified goods like metal scrap).
• Import of services – When the supplier is located outside India and the place of supply is in India, IGST is payable by the recipient under RCM.

When Does RCM Apply?

RCM doesn’t apply everywhere—it’s activated in certain scenarios:

1. Notified Supplies

• The government publishes lists of goods/services where RCM is strictly enforced.
• This often includes legal services, transport, services provided by government, and more.

2. Purchases from Unregistered Suppliers

• If a GST-registered business purchases taxable goods/services from an unregistered supplier, the recipient must pay GST under RCM.

3. Import of Services

• Any Indian business/entity that imports services from abroad pays GST under RCM—regardless of the foreign supplier’s GST status.

Who is Liable to Pay GST under RCM?

• Registered Recipient: Whoever receives the goods/services is responsible.
• Mandatory GST Registration: Even if the turnover is below the normal threshold, RCM liability mandates GST registration (Section 24, CGST Act).
• Not applicable for Exempted Supplies: RCM does not apply to goods/services fully exempt from GST.

Time of Supply under RCM

The time of supply (TOS) rules under RCM differ from forward charge:

• Goods (Section 12(3)) – Earliest of:
  1. Receipt of goods
  2. Date of payment
  3. 30 days from supplier’s invoice date
     (If not determinable: date of entry in recipient’s books.)
• Services (Section 13(3)) – Earliest of:
  1. Date of payment
  2. 60 days from supplier’s invoice date
     (If not determinable: date of entry in recipient’s books.)

Special Note (Rule 47A – effective 1 Nov 2024):
Self-invoices for supplies from unregistered persons must be issued within 30 days (45 days for banks/NBFCs).

Invoicing and Documentation

The documentation requirement under RCM is strict — and often missed.

1. If Supplier is Registered:
   • Supplier issues invoice with the statement “tax is payable on reverse charge” (Rule 46).
   • No GST charged on invoice.
2. If Supplier is Unregistered:
   • Recipient must issue a self-invoice under Section 31(3)(f).
   • Issue a payment voucher when making payment (Section 31(3)(g), Rule 52).
   • Adhere to the 30-day self-invoicing deadline (Rule 47A).

Input Tax Credit (ITC) on RCM Payments

• Claim Allowed: Yes, if goods/services are for business use and ITC is eligible.
• Paid in Cash First: Only after cash payment can ITC be claimed in GST returns.
• Exceptions: Composition dealers cannot claim ITC on RCM supplies.

Compliance & Return Filing

• Report RCM liability in GSTR-3B – Table 3.1(d).
• Maintain proper working papers for RCM calculations.
• Keep a record of all self-invoices, payment vouchers, and supporting documentation.
• Ensure correct tax head:
  • IGST if interstate supply/place of supply in another state.
  • CGST + SGST if intrastate.

Detailed List of Goods and Services under RCM

Notified Services

Notified Goods

• Cashew nuts (not shelled or peeled)
• Bidi wrapper leaves
• Silk yarn supplied by an agriculturist
• Cement/Capital goods (in construction by unregistered suppliers)

New services/goods get notified periodically, so always check the latest official lists.