GST · Glossary
RCM (Reverse Charge Mechanism)
GST mechanism where the recipient, not the supplier, pays the tax directly to the government.
Reverse Charge Mechanism (RCM), prescribed under Section 9(3) and 9(4) of the CGST Act, 2017 and Section 5(3) of the IGST Act, applies when the liability to pay GST shifts from the supplier to the recipient. On imported services it is Notification 10/2017-Integrated Tax (Rate), Sl. No. 1 that does the shifting — and that entry applies to "any person located in the taxable territory OTHER THAN a non-taxable online recipient". That exclusion decides which of two situations you are in.
If you are GST-registered and buy a service from a foreign supplier, you are the person the entry names. You self-assess 18% IGST, declare it in GSTR-3B Table 3.1(d), and claim the same amount back as ITC where the input is eligible — so the net cash impact is usually nil, but both legs must be reported.
If you are NOT GST-registered and the service is OIDAR (software and other services delivered online), you are a non-taxable online recipient under IGST Section 2(16), as substituted with effect from 1 October 2023 by Notification 28/2023-Central Tax. The entry excludes you, so no reverse-charge liability arises — and because Section 24(iii) of the CGST Act compels registration only of persons required to pay tax under reverse charge, buying foreign software does not by itself force you to register. Under IGST Section 14 the foreign supplier is liable instead, and must take simplified registration in India and file GSTR-5A.
Two limits matter. This covers OIDAR only: a bespoke, human-delivered service from a foreign consultant leaves you outside the definition, and then reverse charge and compulsory registration do apply. And the relief ends the moment you register — a registered person is not an unregistered one, so from that day your foreign software sits in the first situation, not the second.
Worked example
Two freelancers each pay Rs. 6,000/month for the same foreign design tool. Arjun is GST-registered: he self-assesses 18% IGST = Rs. 1,080, declares it in GSTR-3B Table 3.1(d), and claims Rs. 1,080 back as ITC in Table 4A of the same return — Rs. 0 net cash, but both legs reported. Meera is not registered: for an online service she is a non-taxable online recipient, the reverse-charge entry excludes her, so she owes nothing and is not pushed into registering. The foreign supplier is liable instead.
Practitioner tip
Check your own registration status before acting on anything you read about this. Most of the web still describes the pre-October-2023 rule, under which business use disqualified you from the non-taxable-online-recipient exclusion — that wording was removed. If you are registered, omitted RCM is a real exposure and an officer can raise a demand with interest and penalty. If you are not registered, do not let a blog post talk you into registering for it. Human-delivered services from abroad are a separate case: those are not OIDAR.
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Browse all GST rates & SAC codes →Related glossary terms
- GSTR-3B — Monthly summary return where you pay GST liability and claim Input Tax Credit.
- GSTR-1 — Monthly or quarterly return of outward supplies (sales) filed by every registered taxpayer.
- GSTIN — 15-character alphanumeric GST registration number assigned to every GST-registered taxpayer.
Sources
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These definitions are educational. Tax laws change annually — verify with a Chartered Accountant before making GST or income-tax decisions.