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 registered recipient. The most common RCM trigger for Indian freelancers is importing services from overseas suppliers (Google Ads, AWS, Adobe, Zoom, GitHub — any B2B SaaS from a foreign company with no Indian GST registration).
Under IGST Section 7(4) read with the Import of Services definition, importing services for business use attracts 18% IGST payable by the Indian recipient as RCM. The freelancer self-declares this liability in GSTR-3B Table 3.1(d). Importantly, RCM paid on eligible inputs can be claimed back as ITC in the same month — the net cash-flow impact is zero for a regularly-filing GST taxpayer, but the declaration in 3B is mandatory.
Worked example
Arjun pays Rs. 6,000/month for AWS (US entity, no Indian GST registration). Under RCM, he owes 18% IGST = Rs. 1,080 — declared in GSTR-3B Table 3.1(d) as RCM liability. He claims Rs. 1,080 ITC in Table 4A of the same 3B (eligible input for his IT business), netting Rs. 0 cash out-of-pocket.
Practitioner tip
Most freelancers skip RCM on foreign SaaS subscriptions — this is a default. The GSTN portal does not automatically catch it; you self-declare. A GST officer can raise a demand with 18% interest + penalty for omitted RCM going back 3 years.
Related Tool
Free GST Invoice Generator →Manage this in HourSlip
Track RCM expenses and claim ITC in HourSlip →GST rates & SAC codes
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.