Reverse Charge Mechanism reverses the normal GST flow — the recipient pays the tax instead of the supplier collecting and depositing it. It's straightforward in theory and surprisingly easy to miss in practice. Here are the five RCM scenarios we see clients forget most often.
1. Goods Transport Agency (GTA) services
If your client is paying a GTA for road transport of goods, RCM kicks in. The GTA itself doesn't charge GST — your client computes 5% (without ITC) or 12% (with ITC) and deposits it as RCM in GSTR-3B Table 3.1(d).
This is by far the most missed RCM scenario, especially for trading clients who treat freight charges as just another expense and book them at full amount. The freight invoice should be recognised as a GTA service, RCM should be raised at 12%, and ITC claimed in the same month if the goods transported are for business use.
2. Legal services from advocates
Any payment to an individual advocate or a firm of advocates for legal services attracts RCM at 18%. This includes retainers, case-specific fees, drafting fees, and opinion fees. The advocate's invoice will show no GST; the client computes 18% on the fee and pays it to the government.
Senior advocates are also covered. The exemption is narrow: services provided by an arbitral tribunal or a partnership firm of advocates to another advocate are exempt.
3. Director's services
Sitting fees, commission, or any other consideration paid to directors (other than salary paid to whole-time directors) attracts RCM at 18%. The company computes the GST and pays it as RCM.
Note the carve-out: salaries to executive directors are not covered (it's an employment relationship, outside GST scope). But commissions, sitting fees for board meetings, professional fees for advisory work — all RCM.
4. Insurance commission
Insurance agents earning commission from insurance companies don't issue GST invoices to the insurer. Instead, the insurer pays the GST on the commission as RCM at 18%. If your client is an insurance company, this is a monthly RCM line item; if your client is an agent, no GST liability.
5. Import of services
Any service imported from outside India for business use attracts RCM at 18% (or applicable rate). This includes SaaS subscriptions paid in USD, consulting fees to foreign experts, marketing services from offshore agencies. The trigger is service consumption in India, not where the supplier sits.
The hidden RCM bomb: cloud software subscriptions. Many clients book ₹2 lakh annual AWS, Google Workspace, or Adobe subscriptions and don't realise each one creates an RCM liability. Multiply across a SaaS-heavy client and you have ₹50K+ in missed RCM that an assessment will surface eventually.
The reporting flow
For every RCM transaction:
- Pay the supplier the invoice amount (no GST)
- Compute the GST yourself (IGST for inter-state/import, CGST+SGST for intra-state)
- Report the RCM liability in GSTR-3B Table 3.1(d) — Inward supplies liable to reverse charge
- Pay this liability in cash; it cannot be set off against ITC
- Claim the corresponding ITC in Table 4(A)(3) in the same GSTR-3B (if eligible)
Why this gets missed
Most accounting teams set up automation for outward GST (sales) and inward GST (purchases with regular ITC). RCM sits in an awkward middle zone — it's an outflow, but you're paying the government on behalf of a supplier who didn't charge you. It doesn't fit the standard "invoice → tax → return" pattern, so the booking step gets skipped.
The fix is structural: identify RCM-triggering vendor categories (GTAs, advocates, foreign service providers) at the master data level and flag every transaction against them for RCM review. By the time you're filing GSTR-3B, the RCM liability should already be computed.
