Reverse Charge Mechanism (RCM) Explained for Small Businesses

Normally, the seller collects GST and pays it to the government. Under the reverse charge mechanism (RCM), that flips: the buyer — you — pays the GST directly, even though you're the one receiving the goods or service, not supplying it.

When RCM actually applies to a small business

• Legal services from an individual advocate or law firm — the business receiving the service pays GST under RCM, not the advocate.
• Goods Transport Agency (GTA) freight — if the transporter hasn't opted to pay GST themselves, the consignor or consignee pays it under RCM instead.
• Sponsorship services provided to a company or firm.
• Import of services from a supplier outside India — the Indian recipient pays IGST under RCM.
• Certain purchases from an unregistered supplier, in specific notified categories.

This list changes — metal scrap was a recent addition — so treat it as a starting point, not exhaustive, and check CBIC's current RCM notifications for your specific purchase category.

What paying RCM actually looks like

You calculate the GST on the purchase yourself, pay it in cash as part of your GSTR-3B filing, and — if the purchase is otherwise eligible — claim it back as input tax credit in that same return. Net cash impact is often close to zero, but the compliance step (calculating it, paying it, claiming it) doesn't happen automatically the way it does on a normal purchase.

The mistake worth avoiding

The most common RCM slip isn't miscalculating the tax — it's forgetting RCM applies at all, because no GST-charging invoice from the supplier prompts you to think about it. If you regularly pay advocates, freight agencies, or import services, it's worth a standing checklist rather than relying on memory each time.