Reverse Charge Mechanism (RCM) Under GST: A Practical Checklist for CAs
RCM liabilities never appear in a supplier's GSTR-1, which means they have to be tracked independently. Here's a working checklist for the transactions that most commonly get missed.
Reverse Charge Mechanism provisions remain one of the more error-prone areas of GST compliance, precisely because the transactions they cover are structurally invisible to normal reconciliation. Under RCM, the recipient — not the supplier — is liable to pay tax, and because these transactions never route through a supplier's GSTR-1, they cannot be caught by comparing GSTR-2B against a purchase register the way ordinary ITC is.
The transactions that most consistently get missed fall into a narrow, recurring set: import of services from related or unrelated parties outside India, director sitting fees and other services from non-employee directors, internal transfers between distinct persons under the same PAN across state lines, and services procured from unregistered persons in specified categories. Each of these requires the recipient to self-invoice and discharge tax under RCM, even when no cash consideration changes hands, as is often the case with related-party or internal transactions.
Recent clarifications on RCM treatment have focused on exactly this category — related-party service imports and inter-branch transfers — reinforcing that the recipient's self-assessment obligation applies regardless of whether the transaction is commercial in the ordinary sense. For finance teams, that means RCM liability identification cannot depend on invoice volume from suppliers; it has to be built as an independent monthly checklist.
A working RCM checklist for most mid-to-large businesses should cover: legal and professional fees paid to unregistered advocates, GTA (Goods Transport Agency) freight charges, sponsorship services, director remuneration outside of salary, import of services against foreign currency payments, and any intra-entity cross-charge between branch GSTINs. Reviewing this list against the general ledger monthly — rather than reconstructing it during annual audit — keeps RCM liability current and the corresponding ITC claim (where eligible) properly timed.
The broader point is that RCM compliance quality is a leading indicator of overall GST hygiene. Businesses that already track it diligently tend to have clean books elsewhere too; those treating it as an annual afterthought usually discover the gap only when a GSTR-9C reconciliation statement forces the comparison.