Buyer pays GST directly instead of supplier. Notified services (GTA, legal, director, sponsorship), import services. Notification 13/2017. ITC claim possible.
RCM = Reverse Charge Mechanism. Normally SUPPLIER GST collects + pays. Under RCM, BUYER pays GST DIRECTLY to government instead of paying supplier. KEY scenarios: (1) Specified goods/services in Notification 13/2017. (2) Unregistered supplier to registered buyer (some cases). (3) Import of services. (4) Goods Transport Agency (GTA). (5) Legal services from advocates. (6) Director services to company. RCM eligible buyer can claim ITC for tax paid under reverse charge.
RCM SPECIFIED SERVICES (Notification 13/2017): (1) GTA (Goods Transport Agency). (2) Legal services from advocates/firms. (3) Director services to company. (4) Sponsorship services. (5) Import of services (from outside India). (6) Insurance agent commission. (7) Recovery agent services. (8) DSA (Direct Selling Agent). (9) Senior advocate services. (10) Renting of motor vehicle (specific). EACH has specific tax rate + conditions. BUYER must self-assess + pay RCM tax via GSTR-3B.
UNREGISTERED SUPPLIER → REGISTERED BUYER: (1) PROMOTERS (real estate): RCM applies above certain thresholds on construction-related supplies from unregistered. (2) OTHER GOODS/SERVICES: Generally RCM withdrawn for unregistered (post-Oct 2017 amendments). (3) SPECIFIC CASES: still apply for notified categories. STRATEGIC: most B2B businesses prefer registered suppliers to avoid RCM compliance burden + ITC complications.
RCM PROCESS: (1) BUYER calculates RCM tax (e.g., 18% on legal services). (2) Pay tax in GSTR-3B (Table 3.1(d) — RCM inward supplies). (3) Generate self-invoice (sometimes). (4) Claim ITC on RCM tax paid (Table 4(A)(3)). (5) Net effect: usually ZERO if ITC fully eligible. CONDITION: Supplier should provide tax invoice (even if RCM). Documentation crucial for ITC claim + scrutiny defense.
ITC ON RCM TAX: (1) Buyer CAN claim ITC if used for taxable business supply. (2) Same conditions as regular ITC. (3) Time-bound — claim within timelines per Section 16(4). (4) NOT eligible: blocked credits (employee benefits, motor vehicles, etc.). (5) Self-invoice should be issued for RCM supplies (per CBIC guidelines). STRATEGIC: maintain RCM register + reconcile monthly. Errors common in this area — engage CA for compliance.