Reverse Charge Mechanism (RCM) Explained

Under normal GST, the seller charges and collects GST from the buyer and deposits it with the government. Under Reverse Charge Mechanism (RCM), the buyer is directly liable to pay GST to the government.

When Does RCM Apply?

1. Notified Goods and Services (Section 9(3))

Specific goods and services notified by the government always attract RCM:

2. Purchase from Unregistered Supplier (Section 9(4))

If you are GST-registered and purchase goods or services from an unregistered supplier above ₹5,000 per day, RCM may apply for certain categories.

Most small business-to-business purchases from unregistered vendors are currently exempt from Section 9(4) RCM following government notifications. Consult your CA for your specific case.

How to Handle RCM in BillYantra

1. When recording a purchase, toggle Reverse Charge to Yes.
2. The GST is shown as self-assessed (you owe it, not the vendor).
3. BillYantra generates the required entries in your GSTR-3B (Table 3.1(d) and Table 4A).
4. Pay the RCM GST in cash (you cannot use ITC to pay RCM liability).
5. You can then claim the same amount as ITC in the same month.

ITC on RCM

The GST you pay under RCM is immediately eligible as ITC in the same tax period, provided:

• The supply is for business use.
• The goods/services are not on the blocked ITC list.

Key Point: Under RCM, you pay GST and claim it back in the same return — it is largely a compliance formality unless you are exempt from claiming ITC.