RCM on Freight

Under reverse charge, the obligation to pay GST shifts from the supplier to the recipient. For goods transport by road, specified categories of recipient — typically registered businesses of certain kinds — must pay the tax on the freight directly to the government rather than to the transporter.

The transporter's invoice in these cases shows the freight amount without adding GST, and states that tax is payable under reverse charge. The recipient then discharges that liability and, where eligible, claims credit for it. From a cash-flow perspective this is generally favourable to the transporter, who is not collecting and holding tax.

The complication is that whether RCM applies depends on the status of the recipient, so the same fleet can be issuing forward-charge invoices to one customer and reverse-charge invoices to another on the same day. Getting this wrong in the customer master produces a systematic billing error that is painful to unwind.