Under the Goods and Services Tax (GST) framework, the general rule is that the supplier of goods or services is liable to pay tax to the government. However, in certain specified situations, this tax liability is shifted to the recipient of the supply. This special mechanism is called the Reverse Charge Mechanism (RCM).
In plain terms: if you purchase goods or services from an unregistered supplier, or if the government has notified a specific category of supply, then you — the buyer — pay GST directly to the government. The seller neither charges nor pays GST in such cases.
DEFINITION & LEGAL FRAMEWORK
Official Definition (CBEC): Reverse Charge means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier, in respect of notified categories of supply.
Legal Basis: Section 9(3) and 9(4) of CGST/SGST Act, 2017 | Section 5(3) and 5(4) of IGST Act, 2017 | Amended by Finance (No.2) Act, 2024
Why RCM exists: To collect tax where it is hard to reach the supplier — e.g., small unregistered agriculturists, foreign service providers, unorganised transport sector, and informal industries like metal scrap.
GST law provides two distinct scenarios where RCM applies. Understanding the difference is critical for compliance:
Legal basis: Section 9(3) of CGST/SGST Act & Section 5(3) of IGST Act, 2017
The Government — on recommendations of the GST Council — notifies specific categories of goods or services. For these, the recipient must pay GST on reverse charge, regardless of whether the supplier is registered or unregistered.
• Applies based on the nature of supply or nature of supplier.
• Government specifies categories by notification (e.g., Notification No. 13/2017-Central Tax (Rate) for services).
• All GST Act provisions apply to the recipient as if they are the person liable for paying tax.
• Both goods and services can be notified — list updated periodically by GST Council.
Legal basis: Section 9(4) of CGST/SGST Act & Section 5(4) of IGST Act, 2017
When a registered GST taxpayer procures taxable goods or services from an unregistered supplier, the registered buyer must pay GST under reverse charge. As of 2025-26, this provision is primarily applicable in the real estate sector (notified by government), and NOT for all registered persons buying from unregistered suppliers generally.
• Currently restricted to notified classes of registered persons — mainly real estate promoters/builders.
• Example: A real estate developer purchasing cement from an unregistered supplier pays 28% GST under RCM.
SECTION 9(4) — CURRENT POSITION (2025-26)
Important Update — Section 9(4) Scope: Unlike the original 2017 provision (which exempted purchases below Rs. 5,000/day), the current framework restricts Section 9(4) to specific notified categories, NOT all unregistered purchases. Businesses outside real estate are generally NOT covered under 9(4) unless specifically notified.
TDS Deductor Exemption (Unchanged): Government entities who are TDS Deductors under Section 51 of CGST Act are exempt from Section 9(4) for procurements from unregistered suppliers. Notification 9/2017-Central Tax (Rate) dated 28.06.2017.
Any person who is required to pay GST under the Reverse Charge Mechanism must compulsorily register under GST, regardless of annual turnover.
REGISTRATION RULES UNDER RCM (Updated 2024)
Threshold NOT applicable: The normal registration threshold of Rs. 20 lakhs (Rs. 10 lakhs for special category states) does NOT apply to persons liable to pay under RCM. Even a turnover of Re. 1 makes registration mandatory if RCM applies.
Exemption Update (Notification 24/2024-CT, w.e.f. 10.10.2024): Earlier, suppliers making ONLY RCM-covered supplies were exempt from registration. This exemption has been WITHDRAWN for suppliers of metal scrap (Chapters 72-81). Metal scrap suppliers must now register once they cross the threshold.
Practical tip: If your business receives any notified RCM supply — GTA bills, advocate fees, director fees, or metal scrap — you must have GST registration regardless of your business size.
• The recipient who pays GST under RCM CAN claim ITC, provided: the goods/services are used for business purposes, supply is not blocked under Section 17(5), and proper self-invoice is maintained (Rule 47A).
• ITC can be claimed in the SAME return period in which RCM tax is paid — no need to wait for next period.
• Pay RCM in Feb GSTR-3B → Claim ITC in Feb GSTR-3B itself (same return).
Even if you pay RCM correctly, ITC is blocked for these categories under Section 17(5):
• Food and beverages, outdoor catering services.
• Health services, cosmetic or plastic surgery.
• Motor vehicles for personal transportation (capacity up to 13 passengers) — unless in transport/travel/dealership business.
• Works contract services for construction of immovable property (other than plant and machinery).
• Club memberships, health clubs, and fitness centres.
ITC & PAYMENT RULES — CRITICAL
CRITICAL PAYMENT RULE: RCM tax MUST be paid through the Electronic Cash Ledger ONLY. You CANNOT use your ITC balance to pay RCM liability. Pay cash first — then claim ITC afterwards.
ITC for Supplier: A supplier CANNOT claim ITC on goods or services used to make supplies on which the recipient is liable under RCM. The ITC benefit flows only to the recipient, not the supplier.
Time of Supply (ToS) determines when GST liability arises. For RCM, special rules under Section 12(3) — Goods and Section 13(3) — Services of the CGST Act apply. These rules were updated by the Finance (No. 2) Act, 2024, effective 1 November 2024.
1. Date of receipt of goods by the recipient
2. Date of payment as per books of account OR date of debit in bank account — whichever is earlier
3. The date immediately following 30 days from the date of issue of invoice or similar document
4. Date of payment as per books of account OR date of debit in bank account — whichever is earlier
5. The date immediately following 60 days from the date of issue of invoice or similar document
TIME OF SUPPLY — KEY RULES
Residual Rule: Where ToS cannot be determined by above methods — date of entry in the recipient's books of account shall be the time of supply.
Advance Payment: Advance paid for RCM supplies also triggers GST liability. The recipient must pay RCM tax at the time of making the advance payment, not on receipt of goods/services.
Practical Example (2026): GTA bill dated 5 Jan 2026 for Rs. 80,000. Payment made on 20 Feb 2026. The 60-day rule pushes deadline to 5 Mar 2026. Payment date (20 Feb) is earlier — so RCM liability arises in Feb 2026 and must be declared in Feb GSTR-3B (due 20 Mar 2026). Declaring in March instead would attract 18% interest on the RCM amount.
RULE 47A — SELF-INVOICE: 30-DAY MANDATORY DEADLINE
What changed: Rule 47A inserted in CGST Rules, 2017 via CGST (Second Amendment) Rules, 2024 — Notification No. 20/2024-Central Tax, effective 1 November 2024.
The Rule: A registered person liable to pay tax under Section 9(3) or 9(4) must issue a self-invoice within 30 days from the date of receipt of the said supply of goods or services.
Why it matters: Before Rule 47A, self-invoicing was a compliance practice without a hard deadline. Now it has a strict 30-day time limit tied to ITC eligibility. Delay in self-invoice = loss of ITC + general penalty.
When a registered buyer purchases goods or services from an unregistered supplier who cannot issue a GST-compliant invoice, the registered buyer must issue a self-invoice on the supplier's behalf. This document serves as the tax invoice for the RCM transaction.
• Must be issued within 30 days of receiving the supply (Rule 47A).
• Must contain all mandatory invoice details: GSTIN of recipient, description of goods/services, taxable value, GST rate, and tax amount.
• Separate self-invoice for each supplier — do not club multiple suppliers in one self-invoice.
• Maintain a numbering tracker to avoid duplication.
• Also issue a Payment Voucher when making payment to the unregistered supplier.
SELF-INVOICE COMPLIANCE WARNINGS
ITC at Risk: If you fail to issue a self-invoice within 30 days, you may lose ITC eligibility on that RCM payment. GST officers are increasingly scrutinising self-invoice timing in audits.
Penalty: Delay in issuing self-invoice post 30 days may attract a general penalty under the CGST Act. Additionally, delay in tax payment beyond the time of supply will attract interest at 18% per annum.
E-Invoice Note: An RCM self-invoice is NOT the same as generating an IRN through the Invoice Registration Portal (IRP). These are two separate compliance requirements. However, if the recipient falls under the e-invoice mandate (turnover >= Rs. 5 Cr), IRN must also be generated for B2B RCM transactions.
Under Section 31 of CGST Act and Rule 46, every tax invoice, receipt voucher, and refund voucher must clearly state: "Tax is payable on reverse charge: YES". This is mandatory disclosure — omitting it is a compliance defect.
• Table 4B of GSTR-1:
• All RCM inward supplies must be reported in Table 4B — rate-wise, invoice-level, separately from regular supplies.
• From 1 June 2025: Invoice Reference Numbers (IRNs) on IRP are case-insensitive — update your ERP accordingly.
• Table 3.1(d):
• Report all inward supplies liable to reverse charge (both goods and services) in Table 3.1(d) of GSTR-3B.
• Pay RCM tax in cash at the time of filing GSTR-3B for the relevant period.
• Claim ITC on RCM paid in Table 4A of GSTR-3B in the same or subsequent period.
• If the taxpayer crosses the e-invoice turnover threshold (currently Rs. 5 Cr aggregate turnover), B2B RCM transactions must also be reported to the IRP and an IRN generated.
• For RCM e-invoices, set the optional field 'Reverse Charge' (column 1.7) = 'Y' in the e-invoice JSON.
• E-invoice and self-invoice are separate requirements — do not confuse them.
• Keep detailed records of all RCM supplies: invoice date, self-invoice number, supplier details, taxable value, GST paid, ITC claimed.
• These records are subject to GST audit — a common audit finding is missing or late self-invoices.
Goods notified under Section 9(3) of CGST Act / Section 5(3) of IGST Act as of March 2026:
S.No.
Description of Goods
Supplier
Recipient
1
Cashew nuts, not shelled or peeled
Agriculturist
Any Registered Person
2
Bidi wrapper leaves (tendu)
3
Tobacco leaves
4
Silk yarn
Manufacturer from raw silk/cocoons
4A
Raw cotton
5
Supply of lottery
State Govt / UT / Local Authority
Lottery distributor or selling agent
6
Used vehicles, seized & confiscated goods, old goods, waste and scrap
Central/State Govt / UT / Local Authority
7 NEW
Metal scrap (Chapters 72–81, Customs Tariff Act 1975) — from unregistered supplier
Unregistered supplier of metal scrap
NEW w.e.f. 10 Oct 2024 | Notification 06/2024-CT(Rate) | GST rate 18% | TDS 2% also applicable on B2B metal scrap
NOTE ON GOODS LIST
Note: Row 7 (Metal Scrap) is the latest addition — effective 10 October 2024 via Notification 06/2024-CT(Rate). Additionally, a TDS of 2% is imposed on B2B purchases of metal scrap from REGISTERED suppliers (Notification 25/2024-Central Tax). Always check latest CBIC notifications for any further additions.
Services notified under Section 9(3) of CGST Act / Section 5(3) of IGST Act — updated as of March 2026:
Part A — Core RCM Services (S.No. 1–7):
Description of Service
Any service from a person in non-taxable territory to any person other than non-taxable online recipient
Includes all imported services — SaaS, cloud, consulting, etc.
Person in non-taxable territory
Any person in taxable territory (excl. non-taxable online recipient)
GTA Services — where GTA has NOT opted for forward charge at 12%
Note: Loading, unloading, packing, ancillary services are now composite supply with GTA (54th GST Council, Sep 2024)
Goods Transport Agency (GTA) paying tax at 5% (without ITC)
Factory, society, co-operative society, registered person, body corporate, partnership firm, casual taxable person
Legal Services by an Advocate or Law Firm
18% GST applies. Law firm/individual advocate does NOT charge GST.
Individual advocate, senior advocate, or firm of advocates
Any business entity in taxable territory
Services by an Arbitral Tribunal
18% GST. Recipient pays RCM.
An arbitral tribunal
Sponsorship Services — REMOVED from RCM
REMOVED from RCM w.e.f. 01 Apr 2025 via Notification 07/2025-CT(Rate). Now under FORWARD CHARGE — supplier pays GST.
Any person (previously)
Body corporate or partnership firm (previously)
Services by Central/State Govt, UT, or Local Authority to a business entity (excl. renting of immovable property; postal services; aircraft/vessel services; goods/passenger transport)
Central/State Govt, UT, or Local Authority
7
Services by a Director of a company or body corporate to that company
18% GST. Common compliance miss — director's fees/sitting fees attract RCM.
Director of company or body corporate
The company or body corporate
Part B — Additional RCM Services (S.No. 8–14):
8
Services by an Insurance Agent
An insurance agent
Any person carrying on insurance business
9
Services by a Recovery Agent
A recovery agent
Banking company / financial institution / NBFC
10
Vessel transportation of goods from outside India to Indian customs station (by non-taxable territory person)
Importer under Clause 26, Section 2, Customs Act 1962
11
Copyright transfer by Author, Music Composer, Photographer, Artist (Section 13(1)(a) Copyright Act 1957 — literary, dramatic, musical, artistic works)
18% GST.
Author, music composer, photographer, artist
Publisher, music company, producer
12
Services by Overseeing Committee members to RBI
Members of Overseeing Committee (constituted by RBI)
Reserve Bank of India
13
Renting of immovable property (residential) — registered tenant using for business, unregistered landlord
NEW w.e.f. Oct 2024 (54th GST Council). 18% GST under RCM.
Unregistered landlord/owner
Registered GST taxpayer using property for business
14
Import of digital/cloud/SaaS/consulting services from abroad
IGST at applicable rate. Report in GSTR-3B Table 3.1(d). Highly scrutinised in 2025-26 audits.
Foreign service provider (non-taxable territory)
Indian registered business recipient
IMPORTANT CHANGES IN SERVICES LIST
REMOVED: Sponsorship services (S.No. 5) have been removed from RCM effective 1 April 2025. If your business was paying RCM on sponsorship payments, update your process immediately.
NEW: Residential property rented from unregistered landlord for business use (S.No. 13) is now under RCM. This is a commonly missed compliance item for businesses that rent residential spaces as offices.
NOTE on Residential Rent: If a registered business rents a residential dwelling for PERSONAL/residential use, RCM does NOT apply. It applies ONLY when used for business purposes by a registered taxpayer.
One of the most frequently missed RCM obligations in 2025-26 is the import of services from outside India. Indian GST officers are increasingly scrutinising this area.
• Any service received from a foreign supplier where the place of supply is India falls under RCM.
• Examples: Zoom subscriptions, AWS/Azure cloud services, Google Workspace, foreign consulting fees, offshore legal or accounting services, overseas software licenses.
• The foreign supplier does NOT charge you Indian GST. YOU must self-assess and pay IGST under RCM.
6. Calculate IGST on the invoice value at the applicable service rate (typically 18% for software/consulting).
7. Issue a self-invoice within 30 days of receiving the service (Rule 47A).
8. Pay IGST in cash through Electronic Cash Ledger.
9. Report in GSTR-3B under Table 3.1(d) — inward supplies liable to reverse charge.
10. Claim ITC in Table 4A of GSTR-3B (same period if eligible).
IMPORT OF SERVICES — AUDIT RISK 2025-26
GST 2.0 Alert: Import-of-service RCM compliance is a growing audit focus area. GST officers are cross-referencing foreign remittances (bank SWIFT data) with GSTR-3B declarations to identify non-compliance. Ensure your foreign service payments are matched with RCM payments.
RESIDENTIAL PROPERTY RENT UNDER RCM [NEW 2024]
Introduced by: 54th GST Council Meeting, September 2024 | Effective October 2024
The Rule: If a GST-registered business rents a RESIDENTIAL property from an UNREGISTERED landlord and uses it for BUSINESS PURPOSES, the registered tenant must pay 18% GST under RCM.
Does NOT apply if: (1) Property used for personal/residential purpose by the individual — not business. (2) Landlord is GST-registered (forward charge applies — landlord pays GST). (3) Commercial property (existing rules apply — registered or unregistered landlord).
Common scenario: A startup renting a 2BHK apartment as an office from an unregistered owner must pay 18% GST under RCM. Self-invoice must be issued within 30 days of each month's rent payment.
GSTR-3B reporting: Declare in Table 3.1(d). ITC claimable in Table 4A if the property is used exclusively for business (ITC on residential property for business is available — not blocked by Section 17(5) if used for taxable supply).
Section 9(5) of the CGST Act creates a separate RCM-like mechanism specifically for e-commerce. Under this provision, the e-commerce operator (platform) is liable to pay GST, not the individual service provider.
• Ride-hailing services: When a customer books a cab through Ola or Uber — the platform pays GST, not the individual driver.
• Housekeeping services: Booked through Urban Company or similar apps — the platform pays GST.
• Restaurant services delivered through Swiggy or Zomato — the platform pays GST.
• Accommodation services booked through OYO, MakeMyTrip, etc. — the platform pays GST.
SECTION 9(5) — E-COMMERCE OPERATOR LIABILITY
Key difference from standard RCM: In Section 9(5), the liability is on the platform (operator), not the individual service recipient/buyer. This provision was introduced to bring small gig economy workers into the tax net without burdening them with compliance.
Impact: Individual cab drivers, housekeeping workers, and small restaurant owners on platforms are NOT required to collect or pay GST — the platform handles it. This reduces the compliance burden on millions of micro-entrepreneurs.
Updated comparison table including GSTR-3B, e-invoice, and self-invoice columns:
Aspect
Forward Charge
Reverse Charge (RCM)
Who pays tax?
Supplier pays GST to govt
Recipient (buyer) pays GST directly
When applicable?
All regular B2B & B2C transactions
Notified goods/services OR unregistered supplier
ITC eligibility
Supplier claims ITC on inputs
Only recipient claims ITC (after cash payment)
Time of Supply
Standard rules – invoice/payment date
Special rules under Sec 12(3)/13(3) CGST Act
Payment method
Cash ledger or ITC balance
Electronic Cash Ledger ONLY (no ITC)
Invoice requirement
Standard tax invoice
Invoice + Self-invoice (Rule 47A – 30 days)
GSTR-1 reporting
Table 4A – outward supplies
Table 4B – separately, rate-wise
GSTR-3B reporting
Table 3.1(a)
Table 3.1(d) – inward supplies under RCM
Advance payment
GST on advance by supplier
GST on advance by recipient under RCM
E-invoice
IRN required if turnover >= 5 Cr
IRN required for B2B RCM if mandate applies
Answer
The recipient (buyer) of goods or services is liable to pay GST under RCM. This applies in two main cases: (1) When the supply falls under government-notified categories under Section 9(3) — e.g., GTA services, legal services, director fees. (2) When a registered person in a notified class purchases from an unregistered supplier under Section 9(4) — currently mainly real estate builders/promoters.
Yes — compulsorily. Any person required to pay GST under RCM must register under GST regardless of their annual turnover. The threshold limit of Rs. 20 lakhs does not apply. Note: Effective 10 Oct 2024, even unregistered metal scrap suppliers who cross the threshold must now register — the earlier exemption for purely RCM suppliers has been withdrawn for this category.
No. This is one of the most critical RCM rules. RCM liability can ONLY be paid through the Electronic Cash Ledger (real money). You cannot use your accumulated ITC balance to discharge RCM dues. Pay cash first. Then claim ITC on that RCM payment in the same or subsequent GSTR-3B (if eligible and not blocked under Section 17(5)).
Effective 1 November 2024 (Rule 47A), you must issue a self-invoice within 30 days from the date of receiving the goods or services from an unregistered supplier. Missing this deadline may result in loss of ITC and attract a general penalty. This is a major compliance change — update your accounts payable process to capture receipt dates and auto-trigger self-invoicing.
No. Effective 1 April 2025, sponsorship services have been removed from the RCM list (Notification 07/2025-CT(Rate)). From 1 April 2025 onwards, the supplier (any person providing sponsorship) is liable to pay GST under forward charge. If your business was paying RCM on sponsorship, update your process immediately and ensure the sponsor now charges GST on their invoice.
It depends on the property type: (a) Commercial property from unregistered landlord — YES, 18% RCM applies. (b) Residential property used for BUSINESS by a registered taxpayer from an unregistered landlord — YES, 18% RCM applies (new rule from Oct 2024). (c) Residential property rented for personal/residential use — NO RCM. Always issue a self-invoice within 30 days of each rent payment.
Yes. All digital/cloud/SaaS services purchased from foreign providers attract IGST under RCM via Section 5(3) of the IGST Act. The foreign company does not charge Indian GST. You must: (1) Calculate IGST at the applicable rate (usually 18%). (2) Issue a self-invoice within 30 days. (3) Pay IGST through Electronic Cash Ledger. (4) Report in GSTR-3B Table 3.1(d). (5) Claim ITC in Table 4A. This is increasingly scrutinised by GST officers who cross-reference foreign remittance data.
No. GTA RCM applies only when the GTA has NOT opted for forward charge (i.e., GTA charges at 5% without ITC — the default option). If the GTA has opted to pay GST at 12% with ITC (forward charge option), then the GTA charges GST on their invoice and RCM does not apply. Always ask your transporter at the start of each financial year whether they have opted for forward charge.
If no invoice is received: The time of supply is 60 days from the date the service was supplied (or should have been supplied). Practically, if you cannot determine this, the date of entry in your books of account shall be the time of supply. Under the updated rules (Finance Act 2024), self-invoice must be issued within 30 days — so proactively issue the self-invoice even without receiving the supplier's invoice.
Partially: (a) Purchase of metal scrap (Chapters 72-81) from an UNREGISTERED supplier — YES, RCM at 18% applies (Notification 06/2024-CT(Rate), w.e.f. 10 Oct 2024). (b) Purchase of metal scrap from a REGISTERED supplier — NO RCM, but TDS @ 2% is deductible (Notification 25/2024-CT). Buyers dealing in metal scrap must also register for TDS under Section 51 of CGST Act (Form REG-07) and file GSTR-7 by 10th of each month.
GSTR-1: Report all RCM inward supplies in Table 4B — rate-wise, invoice-level.
GSTR-3B: Table 3.1(d) — report taxable value and tax on all inward supplies under RCM. Table 4A — claim ITC on RCM paid.
Payment: Pay RCM tax in cash through Electronic Cash Ledger while filing GSTR-3B.
E-Invoice: If covered by e-invoice mandate (turnover >= Rs. 5 Cr), generate IRN with Reverse Charge field = 'Y'.
The Government's GST 2.0 roadmap (reaffirmed at 56th GST Council, Sept 2025) includes digital integration of RCM transactions with e-invoicing and ITC claims — aiming to automate self-invoice validation and eliminate ITC mismatches. Future notifications may expand RCM coverage to additional goods/services categories. Businesses should watch for CBIC notifications in FY 2026-27 for further changes.
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