The Reverse Charge Mechanism (RCM) under Section 9(3) of the CGST Act inverts the usual GST payment obligation: instead of the supplier charging and remitting GST to the government, the recipient of specified services is required to self-assess the GST, pay it in cash through the electronic cash ledger (ITC cannot be used for RCM liability), and then claim it back as ITC in the same return. This sounds administratively neutral — pay and reclaim — but the cash flow impact, the self-assessment compliance obligation, and the penalty for missed RCM payments are significant.
Section 9(3), CGST Act — Reverse Charge Mechanism
The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply.
Statutory Reference
High-Risk RCM Categories (Notification 13/2017-CT(R))
Legal Services by an Advocate
ANY legal service received from an individual advocate or firm of advocates by a business entity. If you pay your lawyer, the GST is your problem under RCM — not the lawyer's. Many businesses with monthly legal retainers have never paid RCM on this.
Sponsorship Services
When a GST-registered business sponsors an event (sports event, cultural programme) provided by any person, the registered business pays GST under RCM at 18% on the sponsorship amount.
GTA (Goods Transport Agency)
Where a registered person receives goods transport by road from a GTA, RCM applies at 5% (if GTA has opted for non-ITC route). The recipient must pay this — and if the GTA is an unregistered transporter, additional unregistered supplier RCM rules apply.
Import of Services
Any service imported from abroad (consulting, software, cloud services, management fees, etc.) is subject to RCM at the full applicable GST rate under IGST Act Section 5(3). Many companies import services regularly without RCM compliance.
Legal fees are the most universally missed RCM category. Every business entity that paid a lawyer ₹1 lakh or more in fees without self-assessing GST at 18% has an RCM liability at every month of payment going back 5 years.
— Sami Tax GST Compliance Desk, 2023
RCM Liability Assessment
- Run a retrospective RCM analysis for the past 3 years: identify all payments to advocates, GTA services, import of services, and sponsorships.
- For each category, compute the GST liability (and confirm ITC reclaim eligibility).
- For settled periods: if RCM was missed, the safest resolution is to compute the outstanding RCM, pay it in cash through the electronic cash ledger with interest for the delay, and then claim ITC in the current return — this reduces penalty exposure dramatically.
- Before the assessment opens this cycle: audit your vendor payment records for the current and past 2 years.
- Our GST team performs RCM liability audits as a fixed-fee engagement and provides a full self-assessment and payment plan within 3 weeks.