Reverse charge mechanism (RCM) is where the buyer, not the seller, pays GST directly to the government on notified supplies — common examples are goods transport agency services, legal services from advocates, and import of services. The buyer must pay the tax in cash and can then claim it back as input tax credit if otherwise eligible.
Under normal GST the seller collects and deposits tax. Under RCM the law flips it: for notified categories, the recipient self-assesses the tax, pays it through the cash ledger (ITC cannot be used for this payment), discloses it in GSTR-3B, and — if the expense qualifies — claims the same amount back as credit. Where the supplier is unregistered, you also raise a self-invoice to document the transaction.
For a typical MSME, the recurring RCM heads are freight paid to transporters, advocate fees, sponsorships, import of services (foreign software, overseas marketing platforms), and certain director payments. The practical fix is a standing list: tag these ledgers in your accounting software so RCM liability gets computed monthly rather than reconstructed at year-end.
The classic failure mode is silence — the supplier doesn't charge GST, so nothing prompts a payment, and the liability accumulates invisibly. It then surfaces during GSTR-9 preparation or a departmental audit, payable with interest for every month of delay, even though the credit would have made it near cash-neutral if paid on time.
Act on it
Reviewed to the law in force in FY 2026-27. General information, not advice — confirm the position for your facts before acting.