Reverse Charge Mechanism in GST: RCM List and Rules (2026 Guide)

Under the reverse charge mechanism (RCM), the recipient of goods or services pays GST directly to the government instead of the supplier. This guide covers the notified supplies that attract reverse charge in 2026, the time of supply rules that decide when liability arises, and the payment and input credit mechanics that trip up even experienced accountants.

What Is Reverse Charge and Why It Exists

In the normal course, the supplier charges GST on the invoice and deposits it with the government. Reverse charge flips this: the recipient computes the tax, pays it from the electronic cash ledger, and reports it in Table 4 of GSTR-3B. The mechanism exists where suppliers are hard to track — truckers, individual professionals, overseas vendors — or where the government wants a self-policing trail, as with purchases of specified goods from agriculturists and government departments.

Services That Attract Reverse Charge

The advocate charge applies at the standard 18% rate and lands on the business entity that engages the lawyer, not on an individual availing legal services personally. GTA liability attaches when the consignor or consignee paying freight is a registered person, so unregistered shippers and receivers of small freight stay out of the net.

Goods That Attract Reverse Charge

Reverse charge on goods is limited to notified items rather than every purchase. The main ones are used vehicles, seized and confiscated goods bought from government departments, unshelled cashew nuts purchased from agriculturists, and notified scrap supplies. Note that the old blanket reverse charge on every purchase from an unregistered supplier was withdrawn in 2019; today small businesses do not need to self-invoice ordinary local purchases, only the notified goods listed in the notifications.

Import of Services: The Most Common Trap

An import of services — a supplier located outside India, a recipient in India, and payment in foreign exchange — attracts reverse charge always, regardless of the supplier’s size. This catches software subscriptions, royalties, management fees and consultant invoices paid to foreign vendors. Critically, the liability also arises where a related party abroad provides services free of cost for business use: the open market value is taxed through valuation rules, and the Indian entity must still discharge RCM. Ignore this and the department can raise demands for earlier years with interest.

Time of Supply Under RCM

Liability timing decides which month’s return must carry the tax. For goods, the time of supply is the date of receipt of goods. For services, it is the earlier of the date of payment or 30 days from the date of issue of the supplier’s invoice — extended to 60 days where the supplier is an associated enterprise. Once the time of supply arises, the recipient must account for tax in the GSTR-3B of that period even if payment or booking happens later.

Paying RCM and Claiming Input Tax Credit

• Raise a self-invoice where required, and mention that tax is payable under reverse charge.
• Pay the liability in cash only — input credit cannot be set off against RCM liability in the same return.
• Report the payment in Table 4 of GSTR-3B under inward supplies liable to reverse charge.
• Claim the ITC afterwards, in the same or a later period, where the goods or services are used for business and the credit is otherwise eligible.

The cash-first rule means working capital must fund the tax even though you get it back as credit. Compute the exposure on frequent supplier invoices using our GST calculator, and verify a supplier’s registration status before assuming any RCM position with our GSTIN verification tool.

RCM for Composition Dealers and Special Cases

Composition dealers, who normally pay flat turnover tax, must still discharge reverse charge on imports of services and on other notified inward supplies, in cash and without any credit. E-commerce operators, government departments and GTA carriers each have sector-specific RCM notifications, so transport-heavy and services-heavy businesses should review the list annually with a GST consultant before closing the books.

Key Takeaways

• Reverse charge shifts GST liability to the recipient for notified services (GTA, advocates, sponsorship, government, security) and notified goods.
• Import of services always attracts RCM, even for free services from related parties abroad used in business.
• Time of supply: date of receipt for goods; earlier of payment or 30 days from invoice for services.
• RCM must be paid in cash from the electronic cash ledger, reported in GSTR-3B Table 4, with ITC claimable afterwards.

Frequently Asked Questions

Is RCM applicable on purchases from unregistered suppliers?

Only for notified goods such as unshelled cashew nuts and specified scrap. The general reverse charge on all unregistered purchases was withdrawn in 2019, so ordinary local purchases do not require self-invoicing.

Can I use input tax credit to pay reverse charge liability?

No. RCM liability must be discharged entirely in cash through the electronic cash ledger. ITC on the same supply can be claimed separately once the tax is paid, provided the credit conditions are met.

Do I pay RCM if a foreign group company provides services free?

Yes, where the free service is used for business. Services from a related supplier abroad are treated as imports of services, valued under the open market valuation rules, and the Indian entity pays the tax.

What is the RCM rate on services from an advocate?

Legal services from advocates, including senior advocates, attract reverse charge at the standard 18% rate, payable by the business entity receiving the service, not by individuals for personal matters.

When does GTA reverse charge apply?

GTA freight attracts RCM where the consignor or consignee paying for the transport is a registered person. Where neither party is registered, no reverse charge arises on the freight.

Disclaimer: Tax laws change frequently. Verify current rates and deadlines on the official portals (incometax.gov.in, gst.gov.in) or consult a qualified professional before acting.