When an Indian recipient procures services from abroad, the tax obligation reverses from supplier to receiver—a process called the reverse charge mechanism in GST. Unlike typical GST, where the supplier charges tax, under GST reverse charge rules, it’s the Indian recipient—domestic or foreign who must account for and pay GST.

Why Reverse Charge Exists

The reverse charge mechanism in GST exists to:

• Ensure tax compliance when suppliers are outside Indian tax jurisdiction .
• Avoid tax evasion on imports and maintain parity with domestic services
• Simplify tax structures when dealing with unregistered or offshore vendors

Through RCM, the Indian recipient shoulders the IGST liability, creating a self-assessed, transparent tax mechanism.

How GST Under RCM Applies to Import of Services

Under GST under RCM for service imports:

1. Supplier is based outside India
2. Recipient is in India, registered under GST
3. The place of supply is India 

In these cases, the recipient must pay IGST at the applicable rate (usually 18%), and if eligible, can later claim input tax credit (ITC) .

Who pays and when?

It’s the recipient, not the foreign supplier, who calculates and remits GST ⋅
Importantly, if using RCM, a business must be GST-registered—even if turnover is below the standard threshold (₹20 lakh/₹10 lakh for hill states).

 Time of Supply under RCM (Reverse Charge Mechanism )

Determining the time of supply under RCM is critical for timely tax payment.

For goods, it is the earliest of:

• receipt date
• payment date
• 30 days after invoice issue

For services, the earliest is:

• payment date
• 60 days after invoice date
• date of entry in recipient’s books if earlier conditions don’t apply .

The recipient must self-invoice or declare the supply, and pay IGST accordingly.

New Rule 47A, effective 1 November 2024, mandates issuing invoices within 30 days of receiving imported services or goods under RCM .

 GST Reverse Charge Mechanism: Compliance Requirements

Mandatory Registration

If you receive RCM‑applicable services and aren’t yet GST-registered, you must register under Section 24 CGST, regardless of turnover.

Invoicing and Record-Keeping

Invoices and vouchers must specify tax under reverse charge. Maintain detailed records of imported services, IGST paid, and ITC claimed.

Payment Procedure

RCM liability must be paid through electronic cash ledger; ITC cannot discharge it directly.

Reporting

Declare RCM transactions in GSTR-1 Table 4B and claim ITC in GSTR-3B.

Common Examples & Practical Implications

1. Legal or Consulting Services from Abroad

If you hire a foreign consultant, you reverse charge IGST, claim ITC if legitimately used in business.

2. Software Support

Import of software-as-a-service (SaaS) platforms incurs RCM — recipient pays IGST and claims credit.

3. Online Advertising

Payments to global ad networks (Google, Facebook) attract RCM—same process.

4. Academic Subscriptions

Utilizing foreign journal subscriptions or courses qualifies as imported services under RCM.

 Time of Supply Scenarios

• If invoice arrives later and payment was earlier: payment date triggers GST.
• If neither payment nor invoice occurs within 60 days: the invoice date becomes time of supply.
• If missing, the date recorded in books is treated as time of supply .

Penalties for Non-Compliance

• Late GST payment under RCM: interest at 18% per annum
• Failure to register when required: penalties up to ₹10,000
• Incorrect invoices or missing GST in return: exon of penalties and ITC denial

 KKS Capital Advisors: Expert Guidance on RCM

For businesses impacted by RCM, KKS Capital Advisors offers expert services:

• Assessing RCM exposure in service imports
• GST registration support for RCM compliance
• Advisory on time of supply under RCM
• Return filing and accurate ITC claims
• Handling GST audits related to RCM

Their niche expertise in the GST reverse charge mechanism ensures accurate compliance and reduces audit risks.

 Summary of Key Points

Final Thoughts

The GST reverse charge mechanism for imports ensures equity between local and overseas service providers and provides a transparent way for the government to track international business transactions. As a recipient of such services, it’s crucial to:

• Know when RCM applies
• Calculate the correct time of supply
• Register under GST early
• File invoices and payments within deadlines
• Maintain proper books to support input tax credit
  
  

If RCM complexities impact your business, KKS Capital Advisors can help ensure compliance, accurate ITR filing in Gurgaon, and streamlined GST practices, safeguarding you from audits or penalties.

Curious about how RCM affects your service imports or need help with compliance? Contact KKS Capital Advisors today for expert GST advisory and seamless RCM implementation.