GST Reverse Charge Mechanism FY 2026-27: RCM Rules, Time of Supply, ITC & Checklist
Under GST reverse charge mechanism (RCM), the recipient—not the supplier—pays GST for specified notified supplies. For FY 2026-27, the main finance-team risk is not simply knowing the term “RCM”; it is identifying the correct notified transaction, paying tax in the correct period, preparing the required document trail, and claiming input tax credit only after the RCM liability has been discharged and normal ITC conditions are satisfied.
Quick RCM checklist
- Check whether the supply falls under section 9(3) or notified section 9(4) cases of the CGST Act, or the corresponding IGST provisions.
- Do not apply RCM merely because the supplier is unregistered.
- Determine time of supply separately for goods/services.
- RCM tax is generally discharged through the electronic cash ledger, not by utilising ITC.
- Claim eligible ITC only after tax payment and satisfaction of section 16 conditions.
- Where the law requires it, prepare the recipient-side self-invoice/payment voucher and retain the RCM working.
Legal basis
Section 2(98) of the CGST Act defines reverse charge as liability to pay tax by the recipient instead of the supplier under section 9(3) or 9(4) of the CGST Act or the corresponding provisions of the IGST Act. Section 9(3) applies to notified categories of supplies. Section 9(4) does not impose a blanket tax on every purchase from an unregistered supplier; it operates only for notified classes of registered persons/supplies.
Common RCM categories businesses should screen
| Supply | Typical RCM issue | Finance check |
|---|---|---|
| Legal services by advocate/firm | Business recipient may be liable under notified RCM conditions | Recipient status, nature of service, place of supply |
| Goods Transport Agency | RCM depends on the GTA's tax option and recipient category | Invoice declaration, option exercised, applicable rate |
| Director services | Separate director services may attract RCM | Distinguish employment remuneration from director-capacity services |
| Specified government/local-authority services | Selected services may be under RCM | Check exact notification/exclusion |
| Specified unregistered-supplier cases | Only notified 9(4) situations | Do not use a blanket unregistered-vendor rule |
| Import of services | Recipient in India may have IGST liability under RCM, subject to law | Place of supply, consideration, related-party/free-service rules where relevant |
Time of supply under reverse charge
Services
For services taxable under reverse charge, the time-of-supply framework generally looks to the earlier of the prescribed payment trigger or the date immediately following 60 days from the supplier's invoice/document date. Where the normal tests do not determine the point, the recipient's book-entry date can become relevant. Associated-enterprise imports have a separate rule.
Goods
For goods under reverse charge, the statutory framework looks to prescribed events including receipt of goods, payment and the period linked to the supplier's invoice. Finance teams should document the actual dates rather than merely using the purchase-booking date.
Self-invoice and payment voucher
Where a registered recipient receives a taxable supply from an unregistered supplier and the recipient is liable to pay tax under reverse charge, GST law contains recipient-side documentation requirements. Depending on the applicable provision and transaction, this can include issuing a self-invoice and a payment voucher. The exact requirement should be checked against the current section 31/rules and notification applicable to the supply.
For audit readiness, keep the supplier's document, recipient-generated document where required, payment evidence, GST rate working, legal basis for RCM and return-period mapping together in one file.
Accounting example
Assume a company receives a notified professional/legal service of ₹1,00,000 on which 18% GST is payable by the recipient under RCM. The accounts team should recognise the service expense, book ₹18,000 RCM tax liability, discharge that liability through cash in the correct return period and then claim eligible ITC of ₹18,000 if all normal credit conditions are satisfied.
The result is not automatically cost-neutral. If the credit is blocked, attributable to exempt supplies, personal use or otherwise restricted, all or part of the ₹18,000 may remain a cost.
Can ITC be used to pay RCM?
RCM tax liability is generally required to be discharged in cash because tax payable under reverse charge is not treated like ordinary output tax that can simply be offset by existing ITC. After payment, the recipient can evaluate the same tax separately as input tax credit, subject to eligibility.
Month-end RCM control
- Scan legal, freight, director, import-service and other notified expense ledgers.
- Review newly created vendors and one-off service categories.
- Identify the exact notification/legal category.
- Determine place of supply and CGST/SGST versus IGST.
- Compute time of supply and liability period.
- Prepare self-invoice/payment voucher where required.
- Pay liability through cash.
- Claim ITC only after payment and eligibility review.
- Reconcile RCM register with GSTR-3B, purchase ledger and cash ledger.
Year-end review
At year-end, an RCM review should not be limited to unpaid vendors. The liability may have arisen based on receipt/payment/invoice timing even when the creditor is no longer outstanding. Run a vendor-wise and ledger-wise scan, especially for freight, legal, directors, imports of services and unusual expenses.
Common mistakes
- Applying RCM to every unregistered purchase.
- Ignoring the GTA's option to pay GST itself.
- Claiming ITC before paying RCM.
- Missing self-invoice/payment-voucher requirements where applicable.
- Treating all director payments alike without checking employment capacity.
- Missing import-service RCM because no Indian GST invoice exists.
- Using the supplier's treatment as the sole basis for deciding recipient liability.
Frequently asked questions
Does every purchase from an unregistered supplier attract RCM?
No. Section 9(4) applies only in notified situations. A blanket unregistered-purchase rule is incorrect.
Can RCM be paid using existing ITC?
RCM liability is generally discharged in cash. Eligible credit can then be claimed separately after payment and satisfaction of ITC conditions.
Do I need a self-invoice?
Recipient-side self-invoicing/documentation can apply in specified reverse-charge cases involving unregistered suppliers. Check the current section 31/rules and relevant notification for the exact transaction.
Can import of services attract RCM?
Yes, import of services can create IGST liability on the recipient under the reverse-charge framework, subject to the statutory conditions and place-of-supply rules.
Official references
Last reviewed: 22 August 2026. Reverse charge is notification- and fact-specific. Verify the current notification, rate, place of supply and recipient category before payment.
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