Reverse Charge Mechanism (RCM) Under GST: When the Buyer Pays the Tax

The Short Answer

Under the Reverse Charge Mechanism, the recipient of a supply pays GST directly to the government instead of the supplier collecting it. It applies in two distinct situations: a specific, notified list of goods and services under Section 9(3), regardless of who the supplier is, and purchases from an unregistered supplier by a registered person under Section 9(4), for the categories still notified under that provision.

The mechanics that trip people up: RCM tax must be paid in cash, never by debiting the ITC ledger, and the paying business raises its own self-invoice since the unregistered or RCM-notified supplier typically issues nothing that carries GST.

Section 9(3) vs Section 9(4) - Different Triggers

These get treated as one rule. They are not.

Section 9(3) is a fixed, notified list. It applies because of what is being supplied, irrespective of whether the supplier is registered. Common examples: GTA services (where the GTA has not opted to pay forward), legal services from an advocate, services from a director to their company, sponsorship services, and services from an insurance or recovery agent.

Section 9(4) is about who the supplier is. It was originally a blanket rule covering all supplies from any unregistered person, was suspended almost immediately after rollout, and now applies only to specific notified categories - most significantly, real estate promoters procuring materials and services from unregistered suppliers below the mandated 80% threshold.

The distinction matters because the notified list under 9(3) is stable and known in advance; 9(4) depends on your supplier’s registration status changing, which is not something your own records show unless someone checks.

The Self-Invoice Requirement

Where the supplier does not or cannot issue a GST-compliant tax invoice - an unregistered vendor, or a notified 9(3) supply where the supplier’s invoice carries no GST - the recipient is required to issue a self-invoice. This is what supports the RCM tax payment and the subsequent ITC claim.

In practice this is the step that gets skipped most often. A GTA freight bill or a legal services invoice comes in without GST charged, the payment is made, and the RCM liability is remembered - or not - only when someone reconciles GSTR-3B at month end. Without the self-invoice, there is no supporting document for either the tax paid or the credit claimed against it.

Tap a step to see what changes under RCM

Hover a step to see what changes under RCM

RCM Tax Cannot Come From the ITC Ledger

This is the rule with the most financial bite: RCM liability must be discharged in cash, through the electronic cash ledger. It cannot be set off against available input tax credit, however much credit is sitting unused.

This makes RCM a genuine cash flow item, not just a compliance one. A business with substantial ITC available can still owe real cash on its RCM liability for the month, and that liability is reported separately in GSTR-3B rather than folded into the general output tax figure.

Claim the Credit the Same Month You Pay

The credit on RCM tax is generally available for ITC in the same period the tax is paid - not deferred to when the supplier’s invoice would otherwise have shown up in GSTR-2B, because there usually isn’t one to show up. This is one case where the return period, not the invoice date, drives the ITC timing.

Missing this window doesn’t lose the credit permanently the way Section 16(4) does, but it does mean cash goes out this month and the offsetting credit sits unclaimed until someone remembers to pick it up in a later return - an interest-free loan to the government that nobody intended to make.

And the credit is still subject to Section 17(5) like any other input tax. Paying RCM on a blocked category does not make it claimable; it just means you paid the tax in cash and still cannot recover it.

Common RCM Categories at a Glance

Category	Trigger	Notes
Goods Transport Agency (GTA)	Section 9(3)	Only if the GTA has not opted to pay forward charge itself
Legal services	Section 9(3)	From an advocate or firm of advocates, to a business entity
Director’s services	Section 9(3)	Services by a director to the company or body corporate
Sponsorship services	Section 9(3)	Recipient is the body corporate or partnership being sponsored
Import of services	Section 9(3)	Recipient in India pays RCM regardless of supplier registration
Real estate - unregistered procurement	Section 9(4)	Promoters, below the mandated registered-procurement threshold

This list moves - categories are added and removed by notification more often than most GST provisions. Treat it as a starting point for what to check, not a final answer.

Where People Get This Wrong

Assuming RCM only concerns the payer. The recipient’s GSTR-3B and the invoice register both need to reflect it, and where the recipient later sells the same goods or services onward, that downstream transaction has to be considered on its own terms.

Forgetting the self-invoice. No self-invoice usually means no clean support for the credit claim if it is ever questioned - the RCM tax may have been paid correctly and the ITC still be difficult to defend.

Netting RCM against available ITC. It is a cash-ledger-only liability. Any workflow that nets it against the ITC balance before generating the challan is going to be wrong every time it runs.

Treating “unregistered” as a one-time check. Section 9(4) applicability depends on the supplier’s registration status at the time of supply. A vendor who registers mid-year changes the answer for supplies going forward, not retroactively.

FAQ

Can I pay RCM tax using ITC available in my ledger? No. RCM has to be paid in cash through the electronic cash ledger, regardless of ITC balance available.

When can I claim ITC on RCM tax paid? Generally in the same return period the tax is paid, since RCM supplies typically will not appear in GSTR-2B the way regular purchases do.

Do I need a self-invoice for every RCM transaction? Where the supplier has not issued a tax invoice showing the applicable GST - which is the normal case for RCM - yes, a self-invoice is required to support the RCM position.

Is RCM applicable on all purchases from unregistered suppliers? No. The original blanket rule under Section 9(4) was suspended shortly after GST began. It now applies only to the specific categories currently notified under that section.

Does RCM apply to imports? Import of services is a notified RCM category under Section 9(3); the Indian recipient pays the tax. Import of goods is taxed as IGST at customs, which is a different mechanism entirely.

Where Invozen Fits

RCM in Invozen starts inside GSTR-2B reconciliation, where an invoice is marked as reverse charge with a reason recorded automatically: Section 9(4) for an unregistered supplier, Section 9(3) for a notified supply where the buyer is liable. That marking is logged in the audit trail against the specific lines it applied to, alongside every other change made during review.

Once tagged, the invoice carries reverse charge through the rest of the pipeline: the GSTR-3B report has dedicated fields for inward RCM taxable value and tax, separate from regular inward supplies, and a separate RCM row in the ITC breakdown - so the cash-only nature of RCM tax and the corresponding credit stay visible as their own line rather than blended into totals someone would otherwise have to un-mix by hand.

What Invozen does not do is decide whether a given supply is RCM - the GTA forward-charge election, a director’s fee, or an unregistered vendor’s status is a judgment your CA makes. What it keeps straight is that once that call is made, it is recorded, reasoned, and threaded consistently through every downstream report.

Book a 30-minute demo to see how an RCM determination flows from GSTR-2B reconciliation through to the GSTR-3B report.

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This reflects the position as of August 2026 and is general information, not tax advice. The notified list of RCM goods and services under Section 9(3), and the categories covered under Section 9(4), change by notification - confirm the current list applicable to your transactions with your tax advisor.