Reverse Charge Mechanism (RCM)
A GST arrangement where the buyer, not the seller, is liable to pay tax directly to the government, applicable to specified goods, services, and supplier categories.
Under normal GST rules, the seller collects tax from the buyer and deposits it with the government. Reverse charge flips that: for specified categories, certain services like those from goods transport agencies, purchases from unregistered suppliers in specified cases, and a defined list of goods and services, the buyer is directly responsible for paying GST to the government, rather than paying it to the seller.
A registered buyer who pays tax under reverse charge can typically claim input tax credit for that same amount, subject to the usual ITC conditions, so RCM mainly shifts who deposits the tax and when, rather than changing the total tax cost for a registered business. It does create a cash flow timing difference and an extra compliance step that's easy to miss if a business isn't specifically tracking which purchases fall under RCM.
This glossary entry is for general informational purposes only and does not constitute professional tax, legal, or financial advice. Rules and rates change, so consult a qualified Chartered Accountant for advice specific to your situation.