Taxation
Reverse Charge in GST (RCM): List, Rules, Examples
Reverse charge mechanism in GST explained: when the buyer pays the tax, the common RCM services and goods, self-invoice, GSTR-3B tables and ITC.
In short
Under reverse charge (RCM), the buyer, not the supplier, pays GST to the government on notified goods and services — such as transport by a goods transport agency, legal services from an advocate, commercial property rented from an unregistered person, and metal scrap bought from an unregistered person. The buyer pays RCM tax in cash through GSTR-3B Table 3.1(d) and can usually claim it back as input tax credit in the same return.
- RCM shifts the liability to pay GST from the supplier to the registered buyer, for notified supplies only.
- Section 9(3) lists goods and services under RCM; section 9(4) applies only to notified purchases from unregistered suppliers (mainly real estate).
- RCM tax must be paid in cash, not out of the input tax credit balance.
- On a purchase from an unregistered supplier under RCM, the buyer issues a self-invoice within 30 days.
- If the purchase is for business, RCM tax paid is usually available as ITC in the same month.
What is reverse charge?
In a normal sale, the supplier charges GST on the bill, collects it from the buyer and pays it to the government. This is forward charge.
Under the reverse charge mechanism (RCM), the roles flip for certain notified goods and services: the supplier does not charge GST, and the registered buyer pays the GST directly to the government.
The government uses RCM where the supplier is small, unorganised or hard to track — an individual advocate, a truck operator, a scrap collector — so that tax is collected from the organised side of the deal.
The legal basis
| Section | What it covers |
|---|---|
| 9(3) CGST / 5(3) IGST | Notified goods and services taxed under RCM regardless of who supplies them |
| 9(4) CGST / 5(4) IGST | Notified purchases from unregistered suppliers (now limited mainly to real estate promoters) |
| 9(5) CGST | Services where an e-commerce operator pays the tax, such as restaurant food through delivery apps (strictly not RCM, but similar in effect) |
Common services under reverse charge
| Service | Supplier | Who pays GST |
|---|---|---|
| Transport of goods by road (GTA) | Goods transport agency that has not opted to pay tax | Registered business or specified recipient |
| Legal services | Individual advocate or firm of advocates | Business entity receiving it |
| Sponsorship services | Any person | Body corporate or partnership firm |
| Services by a director | Director | The company |
| Insurance agent services | Insurance agent | Insurance company |
| Recovery agent services | Recovery agent | Bank or NBFC |
| Security services (manpower) | Non-body-corporate supplier | Registered recipient (with exceptions) |
| Renting of a residential dwelling | Any person | Registered recipient |
| Renting of commercial property | Unregistered person | Registered recipient (composition dealers excluded) |
Common goods under reverse charge
| Goods | Supplier | Who pays GST |
|---|---|---|
| Cashew nuts (not shelled or peeled) | Agriculturist | Registered buyer |
| Raw cotton | Agriculturist | Registered buyer |
| Tobacco leaves | Agriculturist | Registered buyer |
| Silk yarn | Manufacturer of silk yarn | Registered buyer |
| Used vehicles, seized and confiscated goods, old and used goods, waste and scrap | Central or State Government, Union territory or local authority | Registered buyer |
| Metal scrap (chapters 72 to 81) | Unregistered person | Registered buyer |
The metal scrap entry matters to scrap dealers, steel traders and foundries: buying scrap from an unregistered kabadiwala now puts the GST on you. The scrap billing software page covers how such purchases and the TCS on scrap sales are handled.
This list is not exhaustive and is amended from time to time. Check the current notifications (13/2017 for services and 4/2017 for goods, as amended) or ask your CA.
How to comply with reverse charge: step by step
- Identify the purchase. When a bill arrives for freight, legal fees, rent or scrap, check whether it falls under RCM. The supplier’s bill should say “tax payable on reverse charge: yes”.
- Issue a self-invoice if the supplier is unregistered. Under section 31(3)(f) you raise an invoice on yourself, within 30 days of receiving the goods or services. Number it in its own series.
- Issue a payment voucher when you pay the supplier (section 31(3)(g)).
- Work out the time of supply. For services it is generally the earlier of payment or 60 days after the supplier’s invoice; for goods, the earliest of receipt, payment or 30 days after the supplier’s invoice.
- Pay the tax in cash in GSTR-3B. Report the purchase in Table 3.1(d) and pay through the electronic cash ledger. ITC balances cannot be used for RCM tax.
- Claim the credit. If the purchase is for business, claim the same tax in Table 4(A)(3) of the same GSTR-3B.
Worked example: GTA freight
A Surat textile trader pays a transporter ₹20,000 freight. The transporter has not opted to pay GST, so the trader pays GST at 5% under RCM.
| Step | Amount |
|---|---|
| Freight paid to transporter | ₹20,000 (no GST on the LR) |
| RCM tax (5%) | ₹1,000 — IGST if inter-state, or ₹500 CGST + ₹500 SGST |
| Paid through GSTR-3B Table 3.1(d) | ₹1,000 in cash |
| ITC claimed in Table 4(A)(3) | ₹1,000 |
| Net cost of tax | ₹0, but cash is paid first and credit comes back |
The tax is cost-neutral for a regular business, but only if you remember to pay it. Missed RCM is one of the most common findings in GST audits, and it brings interest at 18% a year.
Worked example: metal scrap from an unregistered supplier
A foundry buys 2,000 kg of iron scrap from an unregistered collector for ₹56,000. Scrap carries 18% GST.
- The foundry raises a self-invoice (say RCM-0012) for ₹56,000 within 30 days.
- RCM tax: 18% of ₹56,000 = ₹10,080, paid in cash in GSTR-3B 3.1(d).
- ITC of ₹10,080 is claimed in 4(A)(3) in the same return.
Mistakes to avoid
- Paying RCM from ITC. It must come from the cash ledger.
- Forgetting the self-invoice. Without it, the ITC claim is weak.
- Treating every unregistered purchase as RCM. Since 2019 that is no longer the rule; only notified goods and services are covered.
- Supplier charges GST on an RCM item. If your advocate’s bill shows GST, it should not; the tax is yours to pay. Ask for a corrected bill.
- Claiming ITC on blocked items. RCM tax on something blocked under section 17(5) (for example certain motor vehicle costs) is a cost, not credit.
How RCM fits with your other GST work
RCM is reported in GSTR-3B, not in your GSTR-1 sales. For how the two returns fit together, read GSTR-1 vs GSTR-3B. Composition dealers pay RCM too, without credit; see the composition scheme.
Recording reverse-charge purchases in VyapRise
In VyapRise, each purchase bill carries a nature of supply: regular, reverse charge, import of goods (with bill of entry, port and customs IGST) or import of services. A reverse-charge bill makes a numbered self-invoice (RCM-0001 onwards), and the GSTR-3B report fills Table 3.1(d) and the matching ITC in 4(A). Purchase bills and GST reports are on the Pro plan. VyapRise handles reverse charge on purchases; it is not set up for reverse charge on your own sales invoices.
The RCM lists here are as of October 2026 and are amended by notification. Confirm whether a particular purchase is under reverse charge with your CA.
How VyapRise handles this
Reverse charge on purchase bills
In VyapRise a purchase bill has a nature of supply: regular, reverse charge, import of goods (with bill of entry) or import of services. A reverse-charge bill makes a numbered self-invoice (RCM-0001) and fills GSTR-3B tables 3.1(d) and 4(A). Purchase bills and GST reports are on the Pro plan.
Transporter freight
Transporters can raise lorry receipts with GST on freight at 0% with a reverse-charge note, or at 5%, 12% or 18%, and bill them at SAC 996511 (Pro).
Frequently asked questions
What is RCM in simple words?
Normally the seller collects GST from you and pays it to the government. Under reverse charge, for certain notified goods and services, the seller does not charge GST and you, the registered buyer, pay it directly to the government.
Can I pay RCM tax from my ITC balance?
No. Tax under reverse charge must be paid in cash through the electronic cash ledger. Once paid, the same amount can usually be claimed as input tax credit if the purchase is for business.
Is RCM applicable on purchases from every unregistered supplier?
No. Since 2019, section 9(4) applies only to notified categories, mainly certain purchases by real estate promoters. Ordinary purchases from unregistered suppliers are not under RCM unless the goods or services themselves are notified under section 9(3), such as metal scrap or renting of commercial property.
Does a composition dealer pay RCM?
Yes, a composition dealer must pay tax under reverse charge at the normal rate, and cannot claim it as input tax credit. Composition dealers have been taken out of RCM on commercial property rented from unregistered landlords.
Where is RCM shown in GSTR-3B?
RCM liability goes in Table 3.1(d), inward supplies liable to reverse charge. The input tax credit on it goes in Table 4(A)(3), or 4(A)(1) and 4(A)(2) for imports.
Is GST on GTA freight always under reverse charge?
Not always. A goods transport agency can opt to pay GST itself under forward charge. If it does not, and the recipient is a registered business or one of the specified persons, the recipient pays GST on the freight under reverse charge.