---
title: "RCM Under GST: Applicability, ITC, Self Invoicing & GSTR Forms"
description: "Learn when reverse charge mechanism is applicable, time of supply, registration rules, ITC under RCM, self invoicing, and RCM provisions under GSTR forms."
canonical: "https://busy.in/gst/all-about-reverse-charge-mechanism-rcm-under-gst/"
author: "Rithesh Bajoriya"
published: "2023-03-24T06:42:27.000Z"
category: "GST"
---

-   Reverse Charge Mechanism, or RCM, means the recipient pays GST directly to the government rather than to the supplier.
-   RCM mainly applies to notified goods and services under Section 9(3), specified purchases from unregistered suppliers under Section 9(4), and notified e-commerce supplies under Section 9(5).
-   Not every purchase from an unregistered supplier attracts RCM. This is one of the most common misunderstandings.
-   RCM tax must generally be paid in cash. Input Tax Credit cannot be used to pay RCM liability.
-   ITC on RCM may be claimed only after the tax is paid, provided the expense is business-related and the credit is otherwise eligible.
-   From 1 November 2024, Rule 47A requires the recipient to issue a self-invoice within 30 days from receipt of goods or services wherever self-invoicing is required under RCM.
-   Delayed RCM payment can attract interest under Section 50 and may also lead to penalties depending on the facts of the case.

# Reverse Charge Mechanism Under GST: Meaning, Applicability, Examples, Accounting Entries and Latest Updates

## **What is Reverse Charge Mechanism Under GST?**

Reverse Charge Mechanism under GST is a system where the liability to pay GST shifts from the supplier to the recipient of [**goods or services**](https://busy.in/gst/value-of-supply-under-gst/) . In normal GST, the supplier collects GST from the buyer and pays it to the government. Under RCM, the recipient pays GST directly to the government.

For example, if a registered business receives legal services from an advocate and the service is covered under RCM, the advocate may not charge GST in the bill. The business receiving the service must calculate the applicable GST, pay it in the GST return, and then claim ITC if the credit is eligible. The legal foundation for RCM under CGST primarily derives from [Sections 9](https://taxinformation.cbic.gov.in/content/html/tax_repository/gst/acts/2017_CGST_act/active/chapter3/section9_v1.00.html?utm_source=chatgpt.com) (3), 9(4), and 9(5).

RCM is used when the government wants to ensure tax collection even when the supplier may not be part of the usual GST collection chain. This commonly happens when the supplier is unregistered, operates in a sector where tax collection is difficult, or supplies a category of services specifically notified by the government.

For businesses, RCM is not just a tax concept. It affects purchase booking, vendor master checks, self-invoicing, cash flow, GSTR-3B reporting, and ITC timing. A missed RCM entry can create tax liability, interest, and [**reconciliation issues**](https://busy.in/gst/reconciliation-under-gst/) later.

## **Latest RCM Updates to Check Before Filing**

RCM rules are notification-driven, so businesses should not rely only on old examples. Before filing returns, always verify the latest notification and rate position.

| Update | What Changed | Practical Impact |
| --- | --- | --- |
| Rule 47A from 1 November 2024 | A recipient liable under RCM must issue the invoice within 30 days from receipt of goods or services where invoice issuance by recipient is required | Businesses need a monthly control to identify RCM transactions and create self-invoices on time |
| Renting of immovable property | Notification 09/2024 added RCM for renting of immovable property, other than residential dwelling, by an unregistered person to a registered person | Registered businesses taking commercial property on rent from an unregistered owner must check RCM applicability |
| 07/2025 amendment | Notification 07/2025 amended Notification 13/2017, including changes around sponsorship services and an exclusion for composition taxpayers in the 5AB renting entry | Businesses should review sponsorship payments and rent paid to unregistered persons carefully |
| Metal scrap under RCM | Notification 06/2024 added metal scrap under chapters 72 to 81 when supplied by an unregistered person to a registered person | Manufacturers, traders, and scrap buyers should check vendor registration status |
| E-commerce operator liability | The 56th GST Council meeting discussed local delivery services through e-commerce operators under Section 9(5) | Businesses using platforms should track final notifications and portal treatment before filing |

## **Legal Basis of RCM Under GST**

| Point | Section 9(3) | Section 9(4) | Section 9(5) |
| --- | --- | --- | --- |
| Trigger | Notified goods or services | Notified goods or services bought by a notified registered buyer from an unregistered seller | Notified services supplied through e-commerce platforms |
| Person Liable | Recipient | Recipient | E-commerce operator |
| Supplier Status | Can be registered or unregistered | Must be unregistered | Supplies through a platform |
| Common Examples | Legal services, GTA, director services | Scrap metal, specific inputs for real estate developers | Passenger transport, accommodation, food delivery |
| Business Risk | Missing RCM because item is on RCM list | Missing RCM on specific notified items like scrap metal | Wrongly claiming tax credits on food delivery bills |

## **Common Goods and Services Covered Under RCM**

### **Common Services Under RCM**

The tax liability arises based on the [**Time of Supply**](https://busy.in/gst/time-of-supply-under-gst-explained-what-is-time-of-supply/) rules. According to Section 13(3) of the CGST Act for services, the Time of Supply under RCM is the earliest of the following dates:

-   **Payment Date**: The date on which the payment is entered in the books of the recipient, OR the date it is debited from their bank account (whichever is earlier).
-   **60-Day Invoice Rule:** The date immediately following 60 days from the date of the invoice issued by the supplier.
-   **Book Entry Rule:** If the above two dates cannot be determined, it defaults to the date of entry of the service in the books of the recipient.
-   **Associated Enterprises Rule:** If the supplier is located outside India and is an associated enterprise, the date of entry in the books of the recipient OR the date of payment (whichever is earlier).

| Service Category | Typical Supplier | Typical Recipient Liable Under RCM |
| --- | --- | --- |
| Goods Transport Agency (GTA) | GTA not opting for [**forward charge**](https://busy.in/gst/reverse-charge-mechanism-on-goods-vs-services-a-comparative-analysis/) | Specified business recipients |
| Legal Services | Advocate or firm of advocates | Business entity in taxable territory |
| Arbitral Tribunal Services | Arbitral tribunal | Business entity in taxable territory |
| Sponsorship Services | Any person | Body corporate or partnership firm |
| Director Services | Director | Company or body corporate |
| Insurance Agent Services | Insurance agent | Insurance company |
| Recovery Agent Services | Recovery agent | Bank, FI or NBFC |
| Security Services | Non-body corporate supplier | Registered person |
| Renting of Commercial [**Immovable Property**](https://busy.in/gst/applicability-of-gst-on-real-estate/) | Unregistered person | Registered person |
| Renting of Residential Dwelling | Any person | Registered person |
| Government Services | Government or local authority | Business entity in taxable territory |

### **Common Goods Under RCM**

The time of supply for goods under RCM is the earliest of the following: the date of receipt of goods, the date of payment, or the date immediately after 30 days from the date of the supplier’s invoice. If the time of supply cannot be determined using these rules, the date of entry in the recipient’s books of account is used. Section 12 of the CGST Act gives the specific timing rule for reverse charge on goods.

| Goods Category | Supplier Type | Recipient Type |
| --- | --- | --- |
| Cashew nuts, not shelled or peeled | Agriculturist | Registered person |
| Bidi wrapper leaves (Tendu leaves) | Agriculturist | Registered person |
| Tobacco leaves | Agriculturist | Registered person |
| Silk yarn | Manufacturer of silk yarn | Registered person |
| Raw cotton | Agriculturist | Registered person |
| Supply of lottery | Government / Local authority | Lottery distributor or selling agent |
| Priority Sector Lending Certificates | Registered person | Registered person |
| Used vehicles, seized goods, old goods, waste and scrap | Government / Specified authority | Registered person |
| Metal scrap under chapters 72 to 81 | Unregistered person | Registered person |

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## **RCM on Import of Services**

Import of services is an important RCM area for Indian businesses using foreign SaaS tools, overseas consultants, foreign legal services, cloud subscriptions, online advertising, or cross-border professional services. A service is generally treated as import of services when:

-   The supplier is located outside India.
-   The recipient is located in India.
-   The [**place of supply**](https://busy.in/gst/general-rules-of-place-of-supply-of-services/) is in India.

When these conditions are met, IGST may be payable by the Indian recipient under reverse charge, subject to the applicable [**provisions and exemptions**](https://busy.in/gst/gst-exemptions-products-services/) . The place of supply for many cross-border services is the recipient's location, unless a specific exception applies.

Example: An Indian registered business buys a foreign SaaS subscription for business use. If the service qualifies as import of services and no exemption applies, the Indian business may need to pay IGST under RCM and then claim ITC if the subscription is used for eligible business purposes.

## Self-Invoice, Payment Voucher, and Documentation

When RCM applies when the supplier is unregistered, the recipient may need to issue a self-invoice. [Section 31](https://taxinformation.cbic.gov.in/content/html/tax_repository/gst/acts/2017_CGST_act/active/chapter7/section31_v1.00.html) also requires a [**payment voucher**](https://busy.in/gst/a-guide-to-invoicing-under-gst/) at the time of making payment to the supplier in specified RCM cases. A practical self-invoice should include:

-   Recipient’s GSTIN, name, and address
-   Supplier’s name and address
-   Invoice number and date
-   Description of goods or services
-   HSN or SAC, where applicable
-   Taxable value
-   Applicable GST rate and tax amount
-   Whether tax is payable under reverse charge
-   Place of supply
-   Signature or digital authentication, as applicable

## **How to Pay RCM and Claim ITC**

RCM liability must generally be paid in cash through the electronic cash ledger. Businesses cannot use existing [**ITC balance**](https://busy.in/gst/complete-guide-to-input-tax-credit-under-gst-in-india/) to discharge RCM tax liability. After the RCM tax is paid, ITC may be claimed if the expense is used for business and is not blocked under GST law. The GST Council’s RCM guidance also explains that RCM is paid through the cash ledger and credit can be taken after payment, subject to eligibility.

In GSTR-3B, reverse charge liability is reported under [**inward supplies**](https://busy.in/gst/input-tax-credit/) liable to reverse charge, and eligible ITC on RCM is reported separately under ITC available for inward supplies liable to reverse charge. GST portal guidance refers to Table 3.1(d) for reverse charge liability and Table 4(A)(3) for eligible ITC on inward supplies liable to reverse charge.

## **Accounting Entries for RCM**

The exact [**accounting entry**](https://busy.in/accounting/double-entry-bookkeeping-system-definition-rules-and-examples/) may vary based on software configuration, ledger structure, and whether the transaction is intra-state or inter-state. For example: A company receives legal services of ₹50,000 from an advocate. GST is payable by the recipient under RCM. Assume GST rate is 18%, split as CGST 9% and SGST 9%.

| Step | Accounting Entry | Debit (Dr) | Credit (Cr) |
| --- | --- | --- | --- |
| 1\. Book Expense & Tax | Legal Expense A/c Input CGST (RCM) A/c Input SGST (RCM) A/c To Advocate Payable A/c To Output CGST (RCM) A/c To Output SGST (RCM) A/c | ₹50,000 ₹4,500 ₹4,500 | ₹50,000 ₹4,500 ₹4,500 |
| 2\. Pay the Tax | Output CGST (RCM) A/c Output SGST (RCM) A/c To Bank A/c | ₹4,500 ₹4,500 | ₹9,000 |
| 3\. Claim the Credit | Electronic Credit Ledger A/c To Input CGST (RCM) A/c To Input SGST (RCM) A/c | ₹9,000 | ₹4,500 ₹4,500 |

## Worked Examples of RCM

### **Example 1: RCM on Legal Services**

A registered company receives legal services worth ₹40,000 from an advocate. The advocate does not charge GST because the service is covered under RCM. The company calculates GST on ₹40,000, pays it under RCM in GSTR-3B, and claims ITC if the legal service is used for business and is otherwise eligible.

### **Example 2: RCM on Import of SaaS Service**

An Indian-registered business purchases a foreign software subscription worth ₹1,00,000. The supplier is outside India, the recipient is in India, and the service is used by the Indian business. Assuming an IGST rate of 18%, the business pays ₹18,000 in IGST under RCM. If the software is used for eligible business purposes, the business may claim ITC after payment.

### **Example 3: Interest on Delayed RCM Payment**

Suppose an RCM liability of ₹10,000 was due in April but was paid 20 days late. Then the interest calculation is:

₹10,000 x 18% x 20 / 365 = ₹98.63

The business must pay the tax along with the applicable interest. It should also evaluate whether any [**penalty exposure**](https://busy.in/gst/gst-penalties-and-appeals/) arises under Section 74A, Sections 73 and 74 for periods prior to FY 2024-25, and Section 122. Section 50 governs interest on delayed tax payments.

## **Common RCM Mistakes Businesses Should Avoid**

### **Not tagging RCM transactions at the time of purchase**

Many businesses identify RCM entries only during [**return filing**](https://busy.in/gst/gst-returns/) or year-end reconciliation. By then, invoices may be missed, vendor details may be unclear, and tax payments may get delayed. It is better to tag RCM-applicable purchases at the time of entry, especially for legal fees, freight, director payments, sponsorships, rent, scrap purchases, and foreign service payments.

### **Not checking vendor registration status**

RCM treatment can change depending on whether the supplier is registered or unregistered. Businesses should verify vendor GSTIN details before booking such expenses instead of relying only on old vendor records or previous transactions.

### **Mixing RCM expenses with regular purchases**

If RCM expenses are recorded under normal purchase or expense ledgers, they may not appear correctly during [**GSTR-3B preparation**](https://busy.in/gst/a-guide-to-gstr-3b-what-is-gstr-3b/) . Creating separate ledgers or tax categories for RCM helps track liability, payment, and eligible ITC more clearly.

### **Delaying monthly RCM review**

RCM should not be checked only at the end of the financial year. A monthly review helps identify missed invoices, unpaid liability, pending self-invoices, and ITC that should be claimed only after tax payment.

### **Missing foreign service payments**

Payments for foreign SaaS tools, cloud subscriptions, online ads, consulting, design, or professional services are often booked as normal expenses. These should be reviewed separately because they may attract IGST under RCM.

### **Relying on outdated RCM categories**

RCM applicability can change through GST notifications. Businesses should review the latest RCM position before filing returns, especially for frequently updated areas such as rent, sponsorship services, scrap purchases, and e-commerce-related supplies.

## **Conclusion**

Reverse Charge Mechanism is not just a GST theory topic. It directly affects vendor checks, purchase booking, self-invoicing, cash tax payment, ITC timing, GSTR-3B reporting, and [**compliance risk**](https://busy.in/gst/gst-compliance-rating-an-introduction/) . The safest approach is to maintain a monthly RCM checklist, verify notified goods and services, issue self-invoices on time, pay RCM through the cash ledger, and claim ITC only after confirming eligibility.

For businesses handling multiple vendors, imports, freight, legal services, rent, or scrap purchases, [**accounting software**](https://busy.in/accounting-software/) can reduce manual errors by tracking RCM liability, payment, and ITC in one place.

## About the author

**Rithesh Bajoriya**

As a Chartered Accountant with over 18 years of experience, I have honed my skills in the field and developed a genuine passion for writing. I specialize in crafting insightful content on topics such as GST, income tax, audits, and accounts payable. By focusing on delivering information that is both engaging and informative, my aim is to share valuable insights that resonate with readers.

## Frequently asked questions

### Is RCM applicable on all purchases from unregistered suppliers?

No. This is a common misunderstanding. RCM on purchases from unregistered suppliers applies only where the law specifically notifies the class of registered person and the category of supply. It is not a blanket rule for every unregistered vendor purchase.

### Can ITC be used for RCM payment, and when can RCM ITC be claimed?

No. RCM liability must generally be paid through the cash ledger. After the tax is paid, the business can claim ITC if the expense is business-related and the credit is not blocked under GST.

### Is self-invoice mandatory under RCM?

Self-invoice is required in specified RCM cases, especially where the supplier is unregistered and the recipient is liable to pay tax. From 1 November 2024, Rule 47A requires such invoice to be issued within 30 days from receipt of goods or services.

### Where is RCM reported in GSTR-3B?

Reverse charge liability is reported under inward supplies liable to reverse charge, and eligible ITC on RCM is reported separately under inward supplies liable to reverse charge in the ITC section. GST portal guidance refers to Table 3.1(d) for RCM liability and Table 4(A)(3) for eligible ITC on inward supplies liable to reverse charge.

### What happens if RCM is paid late?

The business must pay the pending RCM tax along with interest. Depending on the facts, penalty provisions may also apply. For FY 2024-25 onward, Section 74A provides the framework for tax not paid, short paid, wrongly refunded, or ITC wrongly availed or utilised.

### Is GST charged by the supplier in RCM cases?

In a pure RCM case, the supplier generally does not collect GST from the recipient. The recipient pays GST directly to the government. However, invoices should clearly indicate where tax is payable on reverse charge.

### Does RCM apply to foreign SaaS, cloud, or consulting services?

Yes, it can apply if the service qualifies as import of services. This commonly includes foreign SaaS subscriptions, cloud tools, online advertising, overseas consulting, and similar cross-border services used by an Indian business.

### Why should businesses track RCM monthly?

RCM affects tax payment, ITC, self-invoicing, and return reporting. Monthly tracking reduces the risk of missed tax, late interest, wrong ITC claim, and year-end reconciliation issues.

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