General information, not professional advice. GST rules, rates and due dates change by notification. Check the current position on the GST Portal or with your CA before you act on anything here.
Update, 13 October 2026. The 57th GST Council (8 October 2026) recommended reverse charge on waste and scrap of plastics, tyres, electrical and electronic goods and used cooking oil bought from an unregistered person, with 2% TDS between registered persons. It is not notified yet. See the full list of recommendations.
The short version
- Under reverse charge the recipient pays the GST directly to the government instead of the supplier collecting it.
- Common cases: goods transport agency services, legal services from an advocate, sponsorship, director services and certain notified goods.
- Tax under RCM is paid in cash, not from your credit balance.
- Where the supplier is unregistered and RCM applies, you issue a self-invoice and a payment voucher.
- The tax you pay under RCM is usually available back as input tax credit, subject to the normal conditions.
What reverse charge is
Ordinarily the supplier charges GST, collects it and pays it. Under reverse charge the liability shifts to the recipient: you pay the tax on that purchase directly to the government. The supply is still taxable; only the person who pays has changed.
Two sources of the shift: specific notified goods and services, and specified supplies from unregistered persons to registered ones.
The cases you will meet
- Goods transport agency. Freight paid to a GTA, where the GTA has not opted to pay under forward charge. The most common RCM entry in an ordinary trading business.
- Legal services from an advocate or a firm of advocates to a business entity.
- Sponsorship services provided to a body corporate or partnership.
- Services of a director to the company, in their capacity as director.
- Renting of a motor vehicle in specified circumstances.
- Security services supplied by a non-corporate provider to a registered person.
- Certain notified goods, such as cashew nuts not shelled or peeled from an agriculturist, bidi wrapper leaves, tobacco leaves, silk yarn and scrap in specified cases.
The list is notified and changes, so treat this as the set to watch rather than the whole law.
How it is paid
RCM liability is discharged in cash through the electronic cash ledger. You cannot use your input tax credit balance to pay it. That is a cash-flow point worth knowing before a large freight bill lands at the end of a month.
Self-invoice and payment voucher
Where you are liable under RCM and the supplier is unregistered, there is no supplier invoice to keep, so you generate the document yourself:
- A self-invoice recording the supply, the value and the tax
- A payment voucher when you pay the supplier
These are your evidence for the liability and for the credit that follows it.
Claiming it back
Tax paid under reverse charge is generally available to you as input tax credit, subject to the usual conditions, which means the net effect is often nil. What is never nil is the paperwork and the timing: you pay in cash in one month and take the credit in the same or a later return, so the cash goes out before it comes back.
Where the underlying supply is used for exempt output or falls in a blocked category, the credit is not available and the RCM tax is a real cost.
Where it is reported
In GSTR-3B, inward supplies liable to reverse charge are declared in table 3.1(d) and the tax is paid, while the corresponding credit is claimed in table 4. On the sales side, if you make supplies on which the recipient pays under RCM, you mark those invoices as reverse charge and report them in GSTR-1 without charging tax.
Flagging RCM on a purchase
The practical risk is silence: a freight bill recorded as a plain expense, with no RCM liability raised and no credit claimed. Record purchases as they arrive with the supplier and the tax treatment on the entry, keep the self-invoices with them, and give your CA the purchase register rather than a pile. AawazAI records each purchase with its supplier and tax detail and produces that register; your CA decides the RCM treatment on the ones that need it.
Purchases recorded when they arrive
Photograph the bill or say the purchase, and AawazAI records the supplier, the tax and the items, so your CA sees the freight bill in the register rather than missing it.
Frequently asked questions
What is the reverse charge mechanism in GST?
An arrangement where the recipient of goods or services pays the GST directly to the government instead of the supplier collecting it. It applies to notified goods and services and to certain supplies from unregistered persons.
Can I pay RCM liability using input tax credit?
No. Tax under reverse charge has to be paid in cash through the electronic cash ledger. The credit for it, where available, is claimed separately in the same or a later return.
Do I need to issue a self-invoice under RCM?
Where you are liable under reverse charge and the supplier is unregistered, yes: a self-invoice for the supply and a payment voucher when you pay. These are your records for both the liability and the credit.
Is RCM applicable on freight?
Freight paid to a goods transport agency is the most common RCM case for a trading business, unless the GTA has opted to pay under forward charge. Check what the consignment note says.
Can I claim credit of the tax I paid under RCM?
Usually yes, subject to the normal conditions for input tax credit. It is not available if the supply is used for exempt output or falls in a blocked category under Section 17(5).