RCM on Import of Services – Complete Guide to GST Liability, ITC & Compliance
Master Reverse Charge Mechanism (RCM) for imported services: who pays, legal basis, self‑invoicing, ITC claims, and reporting in GSTR‑3B for foreign SaaS, consultancy, and cloud.
You Pay the GST
On imported services, the Indian recipient pays GST under RCM, not the foreign supplier.
Quick Summary – RCM on Import of Services
- RCM Definition: Reverse Charge Mechanism – recipient pays GST instead of supplier.
- Import of Services: Supplier outside India, recipient in India, place of supply in India.
- Legal Basis: Section 5(3) of IGST Act + Notification No. 10/2017 – Integrated Tax (Rate).
- Rate: Generally 18% on imported business services.
- ITC: GST paid under RCM is creditable as input tax credit in the same month.
- Returns: Report liability in GSTR‑3B Table 3.1(d) and claim ITC in Table 4(A).
What is RCM on Import of Services?
RCM on import of services means the Reverse Charge Mechanism applies when a service is imported into India. Instead of the foreign supplier charging GST, the Indian recipient is liable to pay the tax. The recipient must issue a self‑invoice, calculate GST at the applicable rate (usually 18%), and deposit it with the government. This GST can then be claimed as input tax credit (ITC) if the service is used for business. For example, if an Indian startup subscribes to a US‑based SaaS platform (no GST on invoice), the startup raises a self‑invoice for ₹10,000 + ₹1,800 GST, pays ₹1,800 to the government, and claims ₹1,800 as ITC. DisyTax helps businesses identify RCM transactions and stay compliant. Start with our GST basic terms to understand the fundamentals.
What is Reverse Charge Mechanism Under GST?
The Reverse Charge Mechanism (RCM) is a provision under GST where the liability to pay tax shifts from the supplier to the recipient of the supply. It is governed by Section 9(3) of the CGST Act (for intra‑state supplies) and Section 5(3) of the IGST Act (for inter‑state supplies and imports). For import of services, RCM is triggered because the foreign supplier is not registered in India and cannot collect GST. Therefore, the Indian recipient must self‑invoice and pay the tax. RCM applies to both goods and services, but for import of services, it is the default mechanism. The tax paid under RCM is generally eligible for ITC, subject to business use.
Why is RCM Applicable on Import of Services?
RCM is applicable on import of services because the foreign service provider is outside the jurisdiction of Indian GST authorities. The government cannot compel a US or UK company to register and collect GST. Hence, the law shifts the compliance burden to the Indian recipient. This ensures that imported services do not escape taxation, maintaining a level playing field with domestic service providers. It also allows the Indian recipient to claim ITC, making the GST paid a pass‑through rather than a cost. The notification making all import of services subject to RCM is Notification No. 10/2017 – Integrated Tax (Rate) dated 28th June 2017, under Entry 1 of the table, which covers any service supplied by a person located in a non‑taxable territory to a person located in India.
Legal Provisions Governing RCM on Import of Services
The key legal provisions are:
- Section 2(11) of the IGST Act: Defines "import of services".
- Section 5(3) of the IGST Act: Empowers the government to specify categories of supply where the recipient shall pay tax under reverse charge.
- Notification No. 10/2017 – Integrated Tax (Rate): Specifies that all services imported into India (Entry 1) are subject to RCM, making the recipient liable.
- Section 24 of the CGST Act: Mandates registration for persons liable to pay tax under reverse charge.
- Section 31 of the CGST Act read with Rule 46: Requires the recipient to issue a self‑invoice.
These provisions together form the legal basis for RCM on all imported services.
Who is Liable to Pay GST Under RCM?
The recipient of the service located in India is liable to pay GST under RCM. This applies to any person receiving services from a foreign provider – whether a registered business, a startup, a freelancer, or even an individual for certain services. The foreign supplier does not charge GST. The Indian recipient must issue a self‑invoice, pay the GST in cash (not from ITC), and then claim ITC if eligible.
Conditions for Import of Services Under GST
For RCM to apply, the transaction must be an import of services as per Section 2(11):
- Supplier is outside India.
- Recipient is in India.
- Place of supply is in India.
If the place of supply is outside India, it is not an import, and RCM does not apply. Also, if the foreign supplier has a permanent establishment in India and issues a GST invoice, it may be a domestic supply, and RCM does not apply. Always check the invoice.
GST Rate Applicable Under RCM
The GST rate under RCM for imported services is the same as the rate applicable on similar domestic services. For most business services (consulting, software, advertising, cloud, subscriptions), the rate is 18%. Some services may attract 5% or 12% if a specific exemption or lower rate applies. The rate is determined by the SAC (Service Accounting Code) of the service. For example, legal services, IT services, and marketing services all attract 18%. You must apply the correct rate when self‑invoicing. Our GST rates guide can help identify the right rate.
RCM on Foreign Consultancy Services
When you engage a foreign business consultant, management advisor, or technical expert, and they invoice you without GST, RCM applies. You must self‑invoice at 18% GST, pay the tax, and claim ITC. For example, a Mumbai‑based company pays a London‑based strategy consultant £5,000. The company raises a self‑invoice for the INR equivalent of £5,000 (approx. ₹5,00,000), calculates GST of ₹90,000 (18%), pays it, and claims ITC of ₹90,000.
RCM on Foreign Software and SaaS Services
Subscriptions to foreign SaaS platforms (Notion, Figma, Slack, Canva, HubSpot, etc.) are imports of services. 18% GST is payable under RCM. The Indian recipient must self‑invoice each month or annually based on the billing cycle. The GST paid is creditable. Many businesses miss these because the amounts are small individually, but they can accumulate. Set up a monthly RCM tracker for all foreign SaaS subscriptions.
RCM on Google Ads and Meta Ads Payments
When you pay Google Ads or Facebook/Instagram Ads and the invoice is from a foreign entity (e.g., Google Asia Pacific Pte Ltd, Meta Platforms Ireland Ltd), RCM applies. The Indian recipient must self‑invoice at 18% GST. However, if Google India or Meta India issues the invoice with GST (they are registered in India), it is a domestic supply, and RCM does not apply. Always check the billing entity on the invoice. For foreign invoices, pay GST under RCM and claim ITC. Our GST for digital marketing agency guide covers advertising RCM in detail.
RCM on AWS, Azure and Cloud Services
Cloud services from AWS, Microsoft Azure, and Google Cloud are often billed from their Indian entities (AWS India, Microsoft India, Google India) and include GST – these are domestic supplies. But if you are billed from a foreign entity (e.g., AWS Inc., US), RCM applies. Check the GST number on the invoice. If absent, it's likely a foreign invoice, and you must self‑invoice and pay 18% GST under RCM. Claim ITC in the same month. For startups relying heavily on cloud, this can be a significant cash flow item – but ITC offsets it.
RCM on Subscription Services Purchased from Abroad
Any recurring subscription – Netflix (business use), Adobe Creative Cloud (if billed from abroad), LinkedIn Premium (business), foreign publications, and stock image platforms – attracts RCM. The Indian business must self‑invoice each payment and pay 18% GST. For personal subscriptions, individuals are generally not enforcing RCM, but for business use, compliance is mandatory. The tax paid is available as ITC.
Time of Supply Under RCM
The time of supply for RCM on import of services is the earlier of:
- Date of payment: The date on which payment is made to the foreign supplier (debited from bank account).
- Date of invoice: 60 days from the date of invoice of the foreign supplier.
If both dates are not available, the date of entry in the books of account of the recipient is the time of supply. This rule ensures that GST is paid in a timely manner, even if the foreign invoice is received late. Example: A US consultant invoices on 1st June 2026. The Indian company pays on 15th July 2026. The time of supply is 15th July (payment date, which is earlier than 60 days from invoice).
GST Registration Requirements for RCM Compliance
Under Section 24 of the CGST Act, any person liable to pay tax under reverse charge must compulsorily register for GST, irrespective of turnover. Therefore, if you import services and RCM applies, you must obtain GST registration. Even if your aggregate turnover is below ₹20 lakh, RCM liability triggers mandatory registration. The registration process is online via the GST portal. DisyTax can complete your registration in 7 days. See our GST registration threshold limit guide for details.
How to Pay GST Under Reverse Charge Mechanism
Payment under RCM is made through the electronic cash ledger only. You cannot use input tax credit to pay RCM liability. Steps:
- Create a self‑invoice: Issue an invoice to yourself with your GSTIN, the foreign supplier's details, service description, and GST amount.
- Add cash to the cash ledger: Top up the electronic cash ledger via internet banking or NEFT/RTGS.
- Report in GSTR‑3B: Enter the RCM liability in Table 3.1(d). The portal will debit the cash ledger.
- Claim ITC: In the same GSTR‑3B, claim the ITC in Table 4(A) – this credit is available only after payment.
Ensure sufficient balance in the cash ledger before filing GSTR‑3B.
Input Tax Credit (ITC) on GST Paid Under RCM
Yes, ITC can be claimed on GST paid under RCM. Once the GST is paid in cash and the return is filed, the amount becomes available as ITC in the electronic credit ledger. You can then use this ITC to pay your output GST liability. The credit must be reported in GSTR‑3B Table 4(A). The net cash outflow is effectively zero – you pay ₹1,800 cash and get ₹1,800 credit. However, the cash must be available upfront. For detailed ITC conditions, see our ITC guide.
Reporting RCM Transactions in GSTR‑3B
In GSTR‑3B, RCM on import of services is reported as follows:
- Table 3.1(d): "Inward supplies liable to reverse charge" – enter the taxable value and the IGST amount (since import is inter‑state).
- Table 4(A): ITC on inward supplies liable to reverse charge – claim the same IGST amount.
The tax is paid in cash via Table 6.1. The ITC is credited to your electronic credit ledger. Ensure the amounts match exactly. Any mismatch can lead to a notice. DisyTax's reconciliation ensures accurate reporting.
Accounting Entries for RCM on Import of Services
Proper accounting is critical. For a SaaS subscription of ₹10,000 + 18% RCM GST ₹1,800:
- On receipt of foreign invoice: Debit Expenses ₹10,000, Credit Foreign Vendor ₹10,000.
- On self‑invoice and RCM liability: Debit GST RCM Receivable (ITC) ₹1,800, Credit GST RCM Payable ₹1,800.
- On payment to vendor: Debit Foreign Vendor ₹10,000, Credit Bank ₹10,000.
- On payment of RCM to government: Debit GST RCM Payable ₹1,800, Credit Bank ₹1,800.
- After claiming ITC: The ITC moves from GST RCM Receivable to the electronic credit ledger and is available for set‑off.
Maintain a separate RCM register to track all self‑invoices and payments.
Common RCM Compliance Mistakes
❌ Ignoring RCM on small foreign subscriptions (Notion, Canva, etc.)
✅ Solution: Maintain a monthly list of all foreign vendor payments. If no GST is charged, check if RCM applies.
❌ Paying RCM liability through ITC instead of cash
✅ Solution: RCM liability must be discharged in cash only. Ensure cash ledger has sufficient balance before filing GSTR‑3B.
❌ Not claiming ITC after paying RCM
✅ Solution: Claim ITC in Table 4(A) of the same GSTR‑3B. Failing to claim means you lose the credit.
❌ Assuming RCM doesn't apply if the foreign vendor has a GST number on invoice (but it's a foreign GST number)
✅ Solution: A foreign GST/VAT number does not exempt you from RCM. Only an Indian GSTIN on the invoice indicates a domestic supply.
Penalties for Non‑Compliance
- Non‑payment of RCM: 10% of the tax due or ₹10,000, whichever is higher.
- Interest: 18% per annum on the unpaid tax from the due date.
- Wrongful ITC claim: 100% penalty on wrongly availed credit.
- Non‑registration: If liable under RCM and not registered, penalty of 10% of tax due.
- Recovery proceedings: Continuous non‑compliance can lead to registration cancellation. See GST late fees and cancellation rules.
GST Compliance Checklist for Importers
- ✅ Identify all foreign service providers you pay during the month.
- ✅ For each, check if the invoice includes Indian GST. If not, determine if RCM applies.
- ✅ Raise a self‑invoice for each imported service with correct GST calculation.
- ✅ Ensure sufficient cash balance in the electronic cash ledger to pay RCM liability.
- ✅ Report RCM liability in GSTR‑3B Table 3.1(d).
- ✅ Claim ITC on the same amount in GSTR‑3B Table 4(A).
- ✅ Maintain self‑invoices, foreign invoices, and payment proofs for 72 months.
- ✅ File GSTR‑3B on time – RCM liability must be paid before filing.
Frequently Asked Questions (FAQs) on RCM on Import of Services
What is RCM on import of services?
RCM means the Indian recipient pays GST on services imported from abroad instead of the foreign supplier.
Who pays GST under RCM?
The recipient of the service in India is liable to pay GST under reverse charge.
Can ITC be claimed on RCM?
Yes, ITC can be claimed in the same month after payment of GST under RCM.
Is RCM applicable on foreign services?
Yes, all import of services is subject to RCM under Notification No. 10/2017 – Integrated Tax (Rate).
How to report RCM in GSTR‑3B?
Report liability in Table 3.1(d) and claim ITC in Table 4(A). Pay in cash.
What is the GST rate on RCM for imported services?
Generally 18%. It's the same rate as applicable on similar domestic services.
Do I need GST registration for RCM?
Yes, registration is mandatory if you are liable to pay tax under RCM, regardless of turnover.
What if I don't pay RCM on imported services?
You may face penalty of 10% of tax due or ₹10,000, plus 18% interest. ITC may also be disallowed.