Reverse Charge Mechanism (RCM)
The Reverse Charge Mechanism (RCM) is the arrangement where the recipient of a notified supply pays GST directly to the government instead of the supplier collecting it.
Reverse charge flips the normal rule: for supplies notified under Section 9(3), and certain purchases from unregistered suppliers under Section 9(4), the recipient pays the GST itself. The recipient issues a self-invoice, pays the tax in cash, and may then claim it as ITC — subject to the usual Section 16 conditions.
RCM applies to specified categories — goods-transport agency services, legal services from advocates, director's fees, imports of services and more — under Section 9(3) of the CGST Act, plus notified inward supplies from unregistered persons under Section 9(4). The recipient discharges the liability in cash (it cannot be paid from credit) and self-invoices the transaction.
For reconciliation, RCM is a two-sided entry: an output liability you must remember to pay, and a corresponding ITC you may claim once paid. RCM credit does not depend on GSTR-2B the way normal credit does, but it must still clear Section 17(5). Forgetting the liability is a common, interest-bearing error. The self-invoice must be raised in the period the liability arises, and the credit can be claimed only in or after that period, never earlier.
The Recoup angle: Recoup detects RCM-liable expenses in your ledgers so the self-invoice, cash payment and matching credit are never missed.