Reverse charge under GST, in plain terms
For anyone who has seen 'RCM' on a bill and is not sure what they are supposed to do.
Normally the seller collects GST from you and pays it to the government. Under reverse charge, that is inverted: you, the buyer, pay the tax directly to the government instead of paying it to the seller. The supply is the same; only who deposits the tax changes.
Where it commonly applies
Reverse charge applies to specified categories notified under the law rather than to anything a supplier chooses to mark. The ones an ordinary business meets most often are goods transport agency services, legal services from an advocate, sponsorship, and certain services from a director to the company.
It also applies to import of services, and there are notified categories of goods. A supplier's bill will normally say 'tax payable under reverse charge' where it applies.
How the money actually moves
You pay the supplier their basic amount without GST. You then pay the GST yourself, in cash - and here is the part that surprises people: RCM liability must be paid in cash and cannot be set off against your existing input tax credit balance.
Having paid it, you can then claim it back as input tax credit in the same manner as any other eligible credit, subject to the usual conditions. So the net cost is usually nil, but the cash goes out first.
Reporting it
In GSTR-3B, reverse charge liability is reported separately from your ordinary outward tax, and the credit claimed against it is shown in the input tax credit table. It is a distinct line, not something folded into normal purchases - which is exactly why it goes missing.
- Mark the purchase as reverse charge at the moment you enter it, not at return time.
- Remember the cash payment restriction when planning the month's outflow.
- Keep the supplier's invoice showing the RCM note - it is what supports the treatment.
Why RCM is the one that gets missed
Reverse charge does not look like anything on the face of the books. There is no tax on the supplier's bill, so the purchase entry looks like an exempt or nil-rated one and passes without comment. The liability only exists because the law says so, and nothing in the day's paperwork reminds anybody.
It surfaces in an assessment, with interest, years later. That is why marking it on the voucher - at entry, as a property of that purchase - is the whole of the discipline.
RCM is not TDS
The two are confused constantly, and they are unrelated. TDS is income tax: you withhold a slice of the payment to a supplier and deposit it against their PAN. Reverse charge is GST: you pay the tax the supplier would have collected, in addition to their amount, and claim it back as credit.
One reduces what you pay the supplier. The other does not. A business can face both on the same bill.
Reviewed August 2026. This describes general GST practice and is not tax advice. Thresholds, due dates and rules change by notification, and several vary by state — confirm anything that decides a filing on gst.gov.in or with your accountant.
Questions people ask
- Can I pay RCM liability using my input tax credit balance?
- No. Reverse charge liability has to be discharged in cash. The credit you become entitled to afterwards is claimed separately.
- Do I need to be registered to pay reverse charge?
- There are cases where a person is required to register specifically because they are liable under reverse charge, even below the usual turnover threshold. If your business regularly receives notified supplies, take advice on registration rather than assuming.
- Does Zembook handle reverse charge?
- Yes. A purchase is marked as reverse charge on the voucher itself and is reported separately in GSTR-3B rather than being folded into ordinary input tax - which is where it most often disappears.
Zembook does this part for you
GSTR-1 and GSTR-3B as portal-ready JSON computed from your own vouchers, GSTR-2B reconciliation against your purchases, reverse charge reported separately, e-Way Bill and e-Invoice files.