Priya's company spent ₹4,20,000 on an arbitration last year. She paid the advocate by RTGS, took the invoice, booked it under "legal & professional charges", got the deduction in 36(1)(iii). The invoice didn't show any GST — advocates traditionally don't charge GST. She filed her returns, didn't think about it again.
Twenty months later, an ASMT-10 notice: "You have not declared / paid GST under reverse charge mechanism on legal services received from advocate(s). Show cause why ₹75,600 + interest + penalty should not be demanded."
Priya's reaction: "But my lawyer didn't charge me GST. How is this my problem?"
Surprise: it always was.
- Reverse charge = the buyer pays GST to government instead of the supplier. The supplier issues a regular invoice without tax; the buyer self-invoices, pays GST in GSTR-3B, and (usually) claims it back as ITC the same return.
- Sec 9(3) of CGST Act lists eight notified categories where RCM is mandatory. Most important for founders: legal services from advocates, GTA, security services, director's sitting fees (non-employee), sponsorships, government supplies.
- Net cash flow is usually zero (pay GST + claim back as ITC same month). The pain is in the paperwork — self-invoicing, payment voucher, GSTR-3B reporting.
- If you miss RCM, the consequence is: tax not paid + 18% interest from due date + penalty under Sec 73 (10%) or 74 (100% if fraud established). ITC claim may also be denied for the period.
- Time of supply for RCM: earlier of (a) date of payment or (b) 61st day from supplier's invoice.
The eight Sec 9(3) categories — what you actually need to know
1. Legal services
18% RCM
Services by an individual advocate, senior advocate, or firm of advocates to a business entity. Includes representational, opinion, drafting. Priya's case.
2. GTA (transport)
5% RCM
Goods Transport Agency services. Truck rentals for moving goods. Default 5% RCM (no ITC for GTA). Alternative: GTA can opt for 12% forward charge with full ITC — they'd then issue a tax invoice and you pay them directly.
3. Security services
18% RCM
Provided by any person other than body corporate to a registered person. Office security, watchman services — RCM applies if your security agency is non-corporate.
4. Sponsorship
18% RCM
Sponsoring any event / property / individual. The sponsor (buyer) pays RCM.
5. Director sitting fees
18% RCM
Non-employee director fees / commission paid by company. Note: salary to whole-time / managing directors is employment, not subject to GST. Sitting fees to independent / non-executive directors → RCM.
6. Government supplies
As applicable
Services supplied by Government / Local Authority to business entity (other than renting of residential dwelling). Includes municipal licensing, regulatory approvals, certain audit services.
7. Insurance agent
18% RCM
Commission paid to insurance agents by insurance companies. RCM by the insurance company. (Not relevant to most operating businesses unless you ARE an insurance company.)
8. Renting of motor vehicle
5% or 12% RCM
Renting passenger vehicles (cabs) by non-body-corporate to body-corporate. 5% if supplier opts no-ITC, 12% with ITC. Most large corporate cab contracts go this way.
Priya's actual catch-up math
- Advocate fees: ₹4,20,000. RCM @ 18% = ₹75,600.
- Office security agency (proprietorship, non-corporate): ₹2,40,000. RCM @ 18% = ₹43,200.
- Independent director sitting fees, ₹50k × 4 quarters = ₹2,00,000. RCM @ 18% = ₹36,000.
- Truck rental for sample shipments via GTA: ₹80,000. RCM @ 5% = ₹4,000.
- Total RCM owed (one year): ₹1,58,800. Plus interest from each missed due date @ 18% p.a. Plus penalty under Sec 73 — typically 10% of tax (₹15,880).
- Net hit: about ₹2 lakh in fixable RCM + interest + penalty. ITC offset reduces this to about ₹40-50k if she can establish the ITC was eligible.
The self-invoice + payment-voucher routine
For every RCM supply you receive (where the supplier is unregistered or has issued an RCM invoice), you do this:
Advocate / GTA / security agency invoices typically don't show GST — they'd mention "GST under reverse charge". Sometimes they don't even know about RCM and just bill the fee. Either way, you're responsible.
Mandatory if your supplier is unregistered. Includes: your GSTIN, supplier details, description, value, applicable rate, IGST/CGST+SGST. Date is the time-of-supply date.
Acknowledging the payment to the supplier. Combined with self-invoice, this is your full RCM documentation set.
In Table 3.1(d) — "Inward supplies (liable to reverse charge)". Pay in cash (not from ITC ledger — RCM payment must be in cash). This is critical: RCM cannot be paid through ITC offset, only cash.
In Table 4(A)(3) — ITC available from inward supplies on RCM basis. As long as the underlying service is used for business and not blocked under Sec 17(5), you get full ITC. Net cash impact across the two entries: zero.
Two reasons: (1) The law explicitly requires the self-invoice / payment voucher / GSTR-3B reporting — missing it is the offence, even if no net tax is owed. (2) If you fail to pay RCM in time, you lose the right to claim the corresponding ITC. The audit findings on RCM are usually about denied ITC, not just unpaid tax — the cash exposure can be significant.
Time of supply for RCM — the date that matters
Under Sec 13(3) (services) and Sec 12(3) (goods), the time of supply for RCM is the earlier of:
- Date of payment (in your books or to supplier — whichever is earlier);
- For services: 61st day from supplier's invoice date;
- For goods: 31st day from supplier's invoice date.
This matters because you owe RCM in the GSTR-3B for that month. Pay later → interest at 18% p.a. from the time-of-supply date.
What about Sec 9(4)? (Unregistered-to-registered RCM)
Sec 9(4) originally said: any supply from an unregistered person to a registered person → RCM. It was suspended in October 2017 because of administrative chaos.
Currently, Sec 9(4) RCM applies in limited specified cases, notably:
- Promoters / builders for real estate projects — RCM on inputs procured from unregistered persons (Notification 7/2019-CT(R)).
- Specific categories listed in CBIC notifications from time to time.
For a general operating business — Sec 9(4) RCM doesn't bite. You can buy stationery / coffee / minor services from unregistered suppliers without RCM concern. Only Sec 9(3) categories (the eight above) need RCM treatment.
The funny historical wrinkle
The reverse charge mechanism inverts the normal logic of indirect tax. Usually the supplier collects and remits. But for legal services, GTA, security — categories where suppliers are often small unorganised entities — the government decided it was easier to collect from large registered buyers than to chase thousands of advocates. The buyer essentially does the supplier's tax-compliance work, and gets refunded immediately via ITC. Bureaucratically clever; operationally painful for buyers who didn't know.
The category that catches founders most often: independent director sitting fees. Companies pay non-employee directors but don't realise this is "services received by the company" and triggers RCM. Most boards have one or two non-employee directors. The annual exposure is usually under ₹1L — small in absolute terms, but the audit notice is annoying.
Quick answers
Yes — services by individual advocate / senior advocate / firm of advocates all attract RCM at 18% when supplied to a business entity. The firm structure doesn't change the rule.
No. Chartered accountants, company secretaries, and other professional service providers are not on the Sec 9(3) list. They charge GST forward (18%) on their invoice and you pay them with GST. ITC available normally.
For most of Sec 9(3) categories, RCM applies only to registered persons as recipients. If you're unregistered and below threshold, RCM generally doesn't apply. But if you ARE registered (even voluntarily), RCM kicks in on these inward supplies regardless of how small your operation is.
Check their GST invoice or PAN structure. Proprietorship / partnership firm / LLP — generally non-corporate (LLP is corporate for some sections, but the GST notification specifies "body corporate" narrowly). Private limited / public limited / OPC — body corporate, no RCM. If their invoice already shows 18% GST charged, they're treating it as forward charge — just pay them and claim ITC normally.
RCM and the Sec 17(5) blocked-credit list interact. If the underlying supply is blocked (passenger vehicle, employee meals, club membership, etc.), ITC on the RCM is also blocked. You pay RCM but can't get it back — net cost is real.
When you might want help
Two situations: (1) You've received an ASMT-10 / DRC-01 for under-paid RCM and need a structured response within 30 days. (2) You're setting up a new business and want a clean RCM checklist + self-invoice template + monthly tracker built into your books from day one.
RCM notice or routine compliance?
RCM identification, self-invoice templates, monthly tracking, GSTR-3B reporting, notice response. Fixed monthly fee.
"Priya" and the numbers shown are composite illustrations. Your specific RCM exposure depends on the vendor types and contracts in your actual books.