Introduction

Under the Reverse Charge Mechanism (RCM), the liability to pay GST shifts from the supplier to the recipient of goods or services. Instead of the supplier charging and depositing GST, the recipient is required to pay GST directly to the government and then claim Input Tax Credit (ITC), subject to eligibility.

RCM is governed primarily by:

• Section 9(3) of the CGST Act
• Section 9(4) of the CGST Act
• Section 5(3) and 5(4) of the IGST Act

The notified categories continue to apply for FY 2026-27, subject to amendments issued by CBIC.

When Does RCM Apply?

RCM generally applies in three situations:

1. Notified Goods

Specific goods notified by the government.

2. Notified Services

Specified services where GST must be paid by the recipient.

3. Certain Supplies from Unregistered Persons

Section 9(4) now applies only to specifically notified categories and not to all purchases from unregistered persons.

Updated List of Services Covered Under RCM (FY 2026-27)

1. Goods Transport Agency (GTA)

RCM applies when GTA has not opted for forward charge taxation.

Recipient liable:

• Factory
• Society
• Co-operative society
• Registered person
• Body corporate
• Partnership firm
• Casual taxable person

GST is paid by the recipient under RCM.

2. Legal Services by Advocate or Law Firm

Services provided by:

• Individual advocate
• Senior advocate
• Firm of advocates

to a business entity are covered under RCM.

Recipient liable:

Business entity located in taxable territory.

3. Arbitral Tribunal Services

Services provided by an arbitral tribunal to a business entity.

Recipient liable:

Business entity receiving the service.

4. Sponsorship Services

Supplier:

Any person

Recipient:

Body corporate or partnership firm

GST is payable by the recipient under RCM.

5. Director Services

Services supplied by a director to:

• Company
• Body corporate

(other than services rendered as an employee)

are covered under RCM.

Recipient liable:

Company or body corporate.

6. Insurance Agent Services

Supplier:

Insurance agent

Recipient:

Insurance company

GST payable under RCM.

7. Recovery Agent Services

Supplier:

Recovery agent

Recipient:

• Banking company
• Financial institution
• NBFC

GST payable by recipient.

8. Import of Services

Services received from a person located outside India by a person located in India generally attract GST under RCM.

Examples:

• Foreign software subscriptions
• SaaS tools
• Overseas consulting
• Foreign marketing services
• Cloud hosting services

This is one of the most commonly missed RCM compliances by startups and professionals.

9. Security Services

Security services supplied by a person other than a body corporate to a registered person are generally covered under RCM.

Recipient liable:

Registered recipient.

10. Renting of Motor Vehicle

In specified cases where a motor vehicle is rented to a body corporate by a non-body corporate supplier, RCM may apply.

Recipient liable:

Body corporate receiving the service.

Updated List of Goods Covered Under RCM

The following goods continue to be notified under RCM in specified situations:

Section 9(4) RCM on Unregistered Suppliers

A common misconception is that GST must be paid on every purchase from an unregistered supplier.

Current Position:

This is NOT applicable to all transactions.

Section 9(4) applies only to specifically notified categories and classes of persons. It does not apply generally to all purchases from unregistered suppliers.

Real Estate Sector RCM

Promoters and builders have special RCM obligations relating to:

• Purchase from unregistered suppliers
• Cement procured from unregistered persons
• Certain capital goods
• Shortfall procurement requirements

These provisions continue to be important for real-estate projects.

Compliance Requirements Under RCM

When GST is payable under RCM:

1. Self-Invoice

If required under GST provisions, self-invoice documentation should be maintained.

2. Payment of GST in Cash

RCM liability must generally be discharged through the electronic cash ledger and not through ITC utilization.

3. Reporting in GSTR-3B

RCM transactions must be reported correctly in GST returns.

4. Claim ITC

After payment of GST under RCM, eligible taxpayers may claim Input Tax Credit subject to Section 16 conditions.

Common RCM Mistakes

Ignoring Foreign SaaS Subscriptions

Examples:

• Adobe
• Canva
• ChatGPT subscriptions
• Cloud hosting platforms

Missing Director Remuneration Review

Not Paying RCM on Legal Fees

Wrong GTA Treatment

Failure to Issue Self-Invoice

Claiming ITC Without Paying RCM

These are frequently observed during GST audits and departmental scrutiny.

RCM Checklist for FY 2026-27

✔ Review all advocate and legal fee payments

✔ Verify director remuneration structure

✔ Check GTA invoices carefully

✔ Review foreign software subscriptions

✔ Review imported services

✔ Verify security service transactions

✔ Check unregistered supplier purchases (where notified)

✔ Ensure RCM liability is paid through cash ledger

✔ Maintain self-invoices and payment vouchers

✔ Reconcile RCM entries with books and GSTR-3B

Conclusion

RCM remains one of the most scrutinized areas under GST. For FY 2026-27, businesses should pay particular attention to:

• GTA services
• Legal fees
• Director services
• Security services
• Foreign SaaS and imported services
• Real-estate sector transactions

Regular review of vendor payments and foreign subscriptions can help businesses avoid GST notices, interest, and penalties arising from missed
RCM liabilities.

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