Reverse Charge Mechanism in GST: Rules, Goods, Services, Entries, and Compliance

Legal Basis of RCM Under GST

RCM under GST primarily arises from three provisions of the CGST Act: Sections 9(3), 9(4), and 9(5). Each one applies in a different situation.

Section 9(3): Notified Goods and Services

Section 9(3) allows the government to notify specific goods or services for which GST must be paid by the recipient rather than the supplier.

Section 9(4): Purchases From Unregistered Suppliers

Section 9(4) applies only in notified cases where a registered person receives specified goods or services from an unregistered supplier. It should not be read as a blanket rule for every purchase from every unregistered supplier. Always check whether the goods or services, supplier type, and recipient type are covered under the latest notification.

Section 9(5): E-Commerce Operator Liability

Section 9(5) covers notified services supplied through e-commerce operators. In these cases, the e-commerce operator is liable to pay GST as if it were the supplier. This is different from the usual recipient-paid RCM workflow. For example, restaurant services supplied through e-commerce operators were brought under Section 9(5) from 1 January 2022.

Notified Goods Under RCM: Practical Working List

The original notified goods list is set out in Notification No. 4/2017-Central Tax (Rate), dated 28 June 2017. The entries it includes depend on the conditions of the supplier and recipient.

2024 Update: Metal Scrap Under RCM

Notification No. 06/2024-Central Tax (Rate), dated 8 October 2024, brought metal scrap under RCM from 10 October 2024 when supplied by an unregistered person to a registered person.

The notified chapters are 72, 73, 74, 75, 76, 77, 78, 79, 80, and 81. This covers more than iron and steel scrap.

Example: A registered manufacturer buys aluminium scrap from an unregistered local scrap dealer. If the scrap falls under the notified chapter, the registered buyer must pay GST under RCM, issue the required self-invoice, and report the liability in GSTR-3B.

Notified Services Under RCM: Practical Working List

Notification No. 13/2017-Central Tax (Rate), dated 28 June 2017, is the base notification for services under RCM. It has been amended several times, so finance teams should always check the latest notification trail before finalizing the return.

2024 and 2025 Rental Update

From 10 October 2024, GST under RCM applies when an unregistered person rents commercial immovable property to a GST-registered person. In simple terms, if a registered business rents commercial property from an unregistered landlord, the registered tenant must pay GST under RCM. This was added through Notification No. 09/2024-Central Tax (Rate).

Later, Notification No. 07/2025-Central Tax (Rate), dated 16 January 2025, added an exclusion: this commercial rent RCM rule does not apply to recipients registered under the composition levy. The same notification also changed the sponsorship RCM entry to exclude body corporate suppliers.

Goods vs Services Under RCM

RCM works differently for goods and services primarily because the trigger points and time-of-supply rules differ.

Time of Supply Under RCM

The time of supply decides the tax period in which RCM must be paid.

Time of Supply for Goods

For goods under RCM, the time of supply is the earliest of:

1. Date of receipt of goods.
2. Date of payment entered in the recipient’s books or debited from the bank, whichever is earlier.
3. The date immediately after 30 days from the supplier invoice date.

If these cannot be determined, the date of entry in the recipient’s books is used.

Time of Supply for Services

For services under RCM, the time of supply is usually the earlier of:

1. Date of payment.
2. The date immediately after 60 days from the supplier invoice date.

If the time of supply cannot be determined under the main rule, the date of entry in the recipient’s books is used.

Practical Example

If an advocate issues an invoice dated 1 July 2026 to a company and the company pays on 20 August 2026, the payment date comes before the 60-day point. The company should recognise the RCM liability based on the payment date.

If payment is not made within 60 days, the company should review the 60-day rule and record the RCM liability for the correct period rather than waiting until the vendor is paid.

Self-Invoice and Payment Voucher Under RCM

Self-Invoice Under RCM

A registered recipient must issue a self-invoice when it receives goods or services from an unregistered supplier and is liable to pay GST under RCM.

Section 31(3)(f) requires the recipient to issue an invoice for such supplies. Section 31(3)(g) separately requires a payment voucher to be issued at the time of payment.

Rule 47A, inserted through Notification No. 20/2024-Central Tax, requires this self-invoice to be issued within 30 days from the date of receipt of supply where an invoice is required under Section 31(3)(f). This rule is effective from 1 November 2024.

What a Self-Invoice Should Capture

A self-invoice should contain the same basic details that make a GST invoice traceable. Instead of treating it as a simple internal note, keep it complete enough to support RCM payment and ITC claim later.

These details follow the standard invoice particulars listed under Rule 46, including invoice number, date, GSTIN, description, value, tax rate, tax amount, place of supply, reverse charge marking , and signature.

Payment Voucher Under RCM

A payment voucher is not the same as a self-invoice. The self-invoice records the supply when the supplier is unregistered and cannot issue a GST invoice . The payment voucher records the payment made to the supplier for a supply on which the recipient is paying GST under RCM. A payment voucher should be issued at or before the time of payment.

How to Report RCM in GSTR-3B

The GST portal’s GSTR-3B guidance identifies Table 3.1(d) as the table for inward supplies liable to reverse charge. It also separates ITC on import of services from ITC on other inward supplies liable to reverse charge, which is why domestic RCM ITC should not be blindly put in Table 4(A)(2).

ITC Treatment Under RCM

No. RCM tax must be paid in cash. The electronic credit ledger can be used to pay output tax. RCM is a recipient-side tax liability and must be discharged through the electronic cash ledger .

After payment, eligible RCM tax can be claimed as ITC if Section 16 conditions are met . The goods or services must be used or intended to be used in the course or furtherance of business, tax must have been paid, the return must be furnished, and other ITC restrictions must be checked.

RCM and Composition Taxpayers

A composition taxpayer can still face RCM liability. However, composition taxpayers are not eligible to claim input tax credit .

This means RCM becomes a cost for a composition taxpayer. For a regular taxpayer, eligible RCM paid in cash may come back as ITC. For a composition taxpayer, that recovery is not available.

GST Registration When RCM Applies

Persons required to pay tax under reverse charge are covered under compulsory registration provisions. Persons required to pay tax under Section 9(5) are also covered.

This means the turnover threshold should not be the only test. If a person becomes liable to pay GST under RCM, registration may be required even if turnover is otherwise below the normal threshold .

Penalty and Interest Risk

Do not treat every RCM error as an automatic 100% penalty case. Delayed tax can attract interest under Section 50 . For FY 2024-25 onward, Section 74A provides a different penalty framework depending on whether the issue involves fraud, wilful misstatement, or suppression of facts.

The actual outcome depends on the facts, the notice stage, the timing of payment, and whether the department alleges fraud or suppression.

Worked Example 1: Metal Scrap Purchase

A registered manufacturing company buys copper scrap worth ₹2,00,000 from an unregistered scrap dealer in July 2026. Copper falls under Chapter 74. Metal scrap under Chapters 72 to 81 is covered when supplied by an unregistered person to a registered person.

The buyer should record the RCM liability, issue the required documents, report the tax in Table 3.1(d), and claim eligible ITC in Table 4(A)(3) after payment.

Worked Example 2: Legal Service from an Advocate

A private limited company receives legal services from an advocate for ₹1,00,000. Legal services by an advocate or firm of advocates to a business entity are covered under RCM.

If the service is used for business and ITC is not blocked, the company can claim an eligible credit after paying and reporting the RCM liability.

Operational Checklist for Finance Teams

Use this checklist at two points: first while booking the purchase bill, and again before filing GSTR-3B.

Common RCM Review Gaps to Catch Before Filing

Most RCM errors occur when the purchase bill is booked correctly as an expense, but the tax treatment is not reviewed before filing GSTR-3B. Finance teams should watch for these gaps during month-end review.

No Notification Mapping Saved Against the RCM Entry

The team may book RCM correctly but fail to note which notification or entry supports the treatment. This becomes a problem during audit or internal review.

Domestic RCM and Import-of-Service RCM Kept in One Ledger

This leads to reporting errors because import-of-service ITC and domestic RCM ITC are recorded in different tables in GSTR-3B.

Vendor-Wise RCM Tagging Applied to Every Bill

A vendor may supply both RCM and non-RCM items. Final treatment should be bill-wise or line-item-wise, not vendor-wise only.

Section 9(5) Platform Bills Treated Like Recipient RCM

E-commerce operator liability is different from normal recipient-paid RCM. This matters while reviewing platform invoices.

RCM Not Adjusted After Credit Notes or Bill Reversals

If a purchase bill is cancelled, reduced, or moved to another ledger, the RCM liability and related ITC should also be reviewed.

Conclusion

The reverse charge mechanism in GST is simple in concept but strict in execution. The recipient must know whether the supply is notified, whether the supplier’s registration status matters, whether a recent amendment applies, and where the liability and ITC should be reported.

For July 2026, the most important corrections are clear. Do not use the old ₹5,000 unregistered purchase rule as a current blanket rule. Do not restrict metal scrap RCM to only Chapters 72, 73, and 81. Do not report domestic RCM ITC in the wrong GSTR-3B table. Do not assume every penalty is automatically 100%.

A good monthly RCM process should combine purchase-register review, supplier-type tagging , self-invoice tracking, cash-ledger payment, and GSTR-3B reconciliation. This is where accountants and finance teams can prevent avoidable notices.