Under normal GST rules, the supplier of goods or services collects GST from the buyer and pays it to the government. Reverse Charge Mechanism (RCM) flips this: the recipient of the goods or services becomes liable to pay GST directly to the government instead of the supplier. RCM applies in specific, listed situations notified by the government: importing services, receiving legal services from an advocate, using goods transport agency services, receiving services from a director to their own company, and, since Notification 09/2024-CT(Rate) (effective 10 October 2024), renting commercial or immovable property from an unregistered person as a registered business. A once-common trigger, a blanket RCM on purchases from any unregistered supplier above a threshold, was suspended back in 2019 and today applies only narrowly, to real-estate promoters procuring inputs and input services below an 80% registered-procurement requirement, not to businesses generally. The recipient must self-invoice, pay the GST, and can typically then claim it back as Input Tax Credit if the purchase is for business use, making RCM largely tax-neutral for a fully compliant business, though it does create a real compliance and cash-flow step that's easy to miss. Getting RCM wrong, either by not applying it when required or wrongly assuming it applies to an ordinary unregistered purchase, is one of the more common errors found during GST audits and reconciliations.
Example: A Surat trading firm hires a freelance advocate for a legal matter. Since legal services from an advocate to a business fall under RCM, the firm itself must calculate and deposit GST on that legal fee, rather than the advocate charging GST on the invoice.
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