Reverse Charge Mechanism
Also called: RCM, reverse charge
What is Reverse Charge Mechanism?
The reverse charge mechanism shifts the responsibility for paying GST from the supplier to the recipient. It applies to notified supplies and to certain purchases from unregistered suppliers, where the buyer pays the tax directly to the government and then claims it as credit if eligible.
Why Reverse Charge Mechanism matters
RCM is easy to miss because nothing on the supplier's bill flags it. Unrecorded reverse charge liability surfaces during scrutiny as unpaid tax with interest attached, long after the purchase itself is forgotten.
How Reverse Charge Mechanism works in practice
Tag the supplies you buy under reverse charge in your purchase register — goods transport, legal services from advocates and similar notified categories — so the liability is captured as the bill is entered rather than reconstructed at filing time.
Frequently asked questions
Reverse charge liability is normally discharged in cash rather than by using existing credit, and the credit for it becomes available afterwards.