In simple words
Normally the supplier collects GST from the customer and pays it to the Government. This is the forward charge.
Under the reverse charge mechanism (RCM), the law makes the recipient pay the GST instead. The supplier issues an invoice without charging GST, and the buyer pays the tax in cash and then usually claims it back as input tax credit (ITC).
RCM applies in three main situations:
- Notified goods and services under section 9(3) of the CGST Act and section 5(3) of the IGST Act, for example legal services from an advocate or GTA freight.
- Notified supplies from unregistered persons under section 9(4), for example a promoter's purchases in real estate projects.
- Import of services, where the Indian recipient pays IGST.
A separate rule, section 9(5), makes e-commerce operators pay the tax on some services supplied through them, such as cab rides, hotel stays and, from 22 September 2025, local delivery by unregistered suppliers.
Services under reverse charge
These are the main entries of Notification No. 13/2017-Central Tax (Rate), as amended. The recipient pays the GST.
| Service | Supplier | Recipient who pays GST |
|---|---|---|
| Goods transport by road (GTA) | Goods transport agency that has not opted for forward charge | Factory, society, co-operative, registered person, body corporate, partnership firm or casual taxable person |
| Legal services | Individual advocate, senior advocate or firm of advocates | Business entity |
| Arbitral tribunal services | Arbitral tribunal | Business entity |
| Sponsorship | Any person other than a body corporate (from 16 January 2025) | Body corporate or partnership firm |
| Most services by the Government or a local authority (with listed exceptions) | Central or State Government, Union territory or local authority | Business entity |
| Renting of immovable property by the Government or a local authority | Government or local authority | Registered person |
| Director's services (sitting fees, commission) | Director | The company or body corporate |
| Insurance agent services | Insurance agent | Person carrying on insurance business |
| Recovery agent services | Recovery agent | Bank, NBFC or financial institution |
| Transfer of copyright by authors, music composers, photographers and artists | Author or artist (an author may opt to pay under forward charge) | Publisher, music company or producer |
| Direct selling agent (DSA) services | Individual DSA (not a body corporate, firm or LLP) | Bank or NBFC |
| Business facilitator services | Business facilitator | Banking company |
| Security services (supply of security personnel) | Any person other than a body corporate | Registered person (some exclusions apply) |
| Renting of a passenger motor vehicle with fuel | Person other than a body corporate who does not charge GST under the forward-charge option | Body corporate |
| Lending of securities | Lender | Borrower |
| Renting of a residential dwelling | Any person | Registered person |
| Renting of any property other than a residential dwelling (for example an office or shop) | Unregistered person (from 10 October 2024) | Registered person, other than a composition taxpayer (from 16 January 2025) |
GTA rate after GST 2.0. Under reverse charge the GTA rate is 5%. A GTA can instead opt to charge GST itself (forward charge) at 5% without ITC, or at 18% with ITC from 22 September 2025 (it was 12% before).
Goods under reverse charge
These are the main entries of Notification No. 4/2017-Central Tax (Rate), as amended.
| Goods | Supplier | Recipient who pays GST |
|---|---|---|
| Cashew nuts (not shelled or peeled) | Agriculturist | Registered person |
| Bidi wrapper leaves (tendu) and tobacco leaves | Agriculturist | Registered person |
| Silk yarn | Person who makes it from raw silk or silk worm cocoons | Registered person |
| Raw cotton | Agriculturist | Registered person |
| Supply of lottery | Government or local authority | Lottery distributor or selling agent |
| Used vehicles, seized and confiscated goods, old and used goods, waste and scrap | Government or local authority | Registered person |
| Priority sector lending certificates | Registered person | Registered person |
| Metal scrap (Chapters 72 to 81) | Unregistered person (from 10 October 2024) | Registered person |
How to account for RCM, step by step
- Find the time of supply. For goods (section 12(3)) it is the earliest of the date you receive the goods, the date you pay, or the 31st day after the supplier's invoice. For services (section 13(3)) it is the earlier of the date you pay or the 61st day after the supplier's invoice.
- Issue a self-invoice if the supplier is unregistered. Rule 47A requires it within 30 days of receiving the goods or services. Also issue a payment voucher when you pay the supplier.
- Pay the tax in cash through the electronic cash ledger. RCM tax cannot be paid from your ITC balance.
- Report it in GSTR-3B: liability in Table 3.1(d), and the credit in Table 4(A)(2) for imported services or 4(A)(3) for other RCM.
- Claim ITC in the same return, if the purchase is for business and the credit is not blocked under section 17(5). For self-invoiced supplies, the ITC time limit runs from the financial year of the self-invoice.
Anyone who must pay tax under reverse charge has to register for GST, whatever their turnover.
Example 1: advocate's fees. A company in Delhi pays a Delhi advocate ₹1,00,000. The advocate charges no GST. The company pays CGST ₹9,000 and SGST ₹9,000 (18%) in cash, reports ₹18,000 in Table 3.1(d), and claims ₹18,000 as ITC in Table 4(A)(3) of the same GSTR-3B. Net cash cost after ITC: nil, but the cash goes out first.
Example 2: freight. A manufacturer pays a GTA ₹50,000 for road freight. The GTA has not opted for forward charge. The manufacturer pays 5% GST of ₹2,500 under RCM in cash and can claim it as ITC.
Example 3: office rent from an unregistered landlord. A registered trading company rents an office from an individual who is not registered, at ₹60,000 a month. From 10 October 2024 the tenant pays 18% GST of ₹10,800 a month under RCM, issues a self-invoice within 30 days, and claims ITC. If the tenant were a composition taxpayer, this entry would not apply from 16 January 2025.
Key GST rules at a glance
| Topic | Rule |
|---|---|
| Rate slabs | From 22 September 2025: 5% (merit), 18% (standard) and 40% (sin and luxury goods), plus nil and special rates such as 0.25% and 3% |
| Registration threshold | Aggregate turnover above ₹40 lakh for goods and ₹20 lakh for services (₹20 lakh and ₹10 lakh in special category States) |
| Composition scheme | Turnover up to ₹1.5 crore (₹75 lakh in some States); up to ₹50 lakh for service providers at 6% |
| E-way bill | Needed to move goods worth more than ₹50,000 in one consignment |
| E-invoicing | Mandatory above ₹5 crore aggregate turnover; above ₹10 crore, an invoice must be reported to the IRP within 30 days of its date |
| ITC conditions (section 16(2)) | You hold a tax invoice, received the goods or services, the invoice appears in GSTR-2B, the supplier paid the tax and you filed your return |
| ITC time limit (section 16(4)) | 30 November after the end of the financial year, or the date of the annual return, whichever is earlier |
| 180-day payment rule | ITC is reversed with interest if you do not pay the supplier within 180 days of the invoice date; it comes back when you pay |
| Blocked credits (section 17(5)) | Including most motor cars, food and beverages, club membership, works contracts for immovable property (other than plant and machinery) and goods for personal use |
| Interest (section 50) | 18% a year on late tax; 24% on ITC wrongly availed and used |
| Monthly returns | GSTR-1 by the 11th and GSTR-3B by the 20th of the next month; QRMP quarterly scheme for turnover up to ₹5 crore |
| Annual return | GSTR-9 for turnover above ₹2 crore (optional below); GSTR-9C reconciliation above ₹5 crore |
| Time bar on returns | A return cannot be filed more than three years after its due date |
| Demands | Sections 73 and 74 up to FY 2023-24; a single section 74A applies from FY 2024-25 |
Common RCM mistakes
- Paying RCM tax from the ITC ledger instead of in cash.
- Missing the self-invoice for unregistered suppliers, especially for rent and scrap.
- Forgetting RCM on directors' sitting fees and advocates' fees, which are often booked by the company secretary or legal team, not accounts.
- Treating RCM on GTA as optional. Ask each GTA whether it has opted for forward charge (Annexure V). Since July 2023 the option carries over to later years until the GTA switches back by filing Annexure VI.
- Claiming ITC on RCM paid for blocked items under section 17(5).
Sources
- Notification No. 13/2017-Central Tax (Rate), services under RCM (CBIC) and later amendments in the CBIC rate notifications
- Notification for reverse charge on goods (CBIC)
- CGST Act, 2017 (CBIC) and CGST Rules, 2017 (CBIC)
- Notification Nos. 9/2025 to 17/2025-Central Tax (Rate) dated 17 September 2025 (GST 2.0 rate changes, effective 22 September 2025), including Notification No. 15/2025-Central Tax (Rate) for services
Checked as of 26 October 2026. RCM lists are amended often; check the latest consolidated notification on the CBIC website before you rely on an entry.
Related
Educational information only. This page is not tax, legal, accounting or investment advice and does not create any professional relationship. Laws, rates and thresholds change: read the official text or consult a qualified professional (CA, CS or lawyer) before you act.
Last reviewed 26 October 2026. Spotted an error? Tell us and we will correct it.