Regulatory & Tax

RCM (Reverse Charge Mechanism)

GST mechanism where the recipient (you) pays GST instead of the supplier — applies to imports and specific notified services.

Under regular GST, the supplier collects tax from the buyer and pays it to the government. Under RCM, the buyer pays directly to the government. RCM applies to: import of services (foreign SaaS, ads, consulting), purchases from unregistered dealers (in some cases), and specific notified categories (legal services, GTA, residential rent for business).

The most common RCM trigger for Indian SMBs: paying for Google Ads, Meta Ads, AWS, Notion, Slack, Cloudflare — any foreign software/service. The supplier doesn't charge GST (they're not registered in India), so you self-assess and pay 18% GST in your GSTR-3B. You can then claim that as Input Tax Credit if you're using it for business.

RCM net effect for most SMBs is zero — you pay GST and immediately claim it back as ITC. The compliance burden is the issue, not the cash flow.

India context

Most Indian SMBs miss RCM on foreign SaaS subscriptions for years until an audit catches it. By then the cumulative liability + interest can be substantial. Best practice: track foreign supplier invoices monthly, calculate 18% RCM, file in GSTR-3B same month, claim ITC simultaneously.

Examples

  • You pay $1,000 for AWS in a month → ₹83,000 + 18% RCM = ₹14,940 GST owed → claim ₹14,940 as ITC. Net zero cash impact.
  • You hire a foreign consultant for $500 → ₹41,500 + 18% RCM = ₹7,470, same offset.

FAQ

Do I need to pay RCM on Google Ads?

Yes. Google Ireland charges no GST in India; you self-assess at 18% and pay through GSTR-3B. Then claim back as ITC if the ads are for business.

What if I forgot to pay RCM for past months?

Pay with interest in the next GSTR-3B. Penalty applies if discovered through audit (avoidable by self-disclosure).

Is RCM applicable for services from unregistered domestic suppliers?

Generally no for SMBs (the threshold-based RCM was withdrawn in 2017). Specific categories like cab services from unregistered drivers still attract RCM.

Related concepts

GSTITCGSTR-3Bimport of servicesplace of supply

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Related glossary entries

GSTIN — Goods and Services Tax Identification Number — a 15-character ID assigned to every GST-registered business in India.GSTR-1 — Monthly (or quarterly) statement of outward supplies — every B2B and B2C invoice your business issued in the period.GSTR-3B — Monthly self-declared summary of all outward and inward supplies and tax liability — the form you actually pay GST against.ITC (Input Tax Credit) — Credit you can claim for GST already paid on business purchases — reduces what you owe in GST.Place of Supply (GST) — GST rule that determines which state/UT gets the tax on a transaction — drives whether CGST+SGST or IGST applies.

More in Regulatory & Tax

DPDP ActGSTINGSTR-1GSTR-3BITC (Input Tax Credit)RERAFSSAIHSN Code
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