Reverse Charge under GST – A Complete Guide 2025

Under the Goods and Services Tax (GST) regime, tax is usually payable by the supplier of goods or services. However, in certain cases, the law shifts the responsibility to the recipient — this is called the Reverse Charge Mechanism (RCM).

RCM was introduced to ensure tax compliance in specific situations, especially where the supplier is unregistered or belongs to a category notified by the Government.

In this handout, we will cover:

1. Relevant sections and rules
2. Cases where RCM applies
3. Time of supply & payment rules
4. ITC eligibility on RCM
5. Self-Invoicing under Reverse Charge
6. Compliance tips and common mistakes

1. Relevant sections and rules

1. Section 9(3) of CGST Act, 2017 – Government notifies certain goods and services where the tax is payable by the recipient.
2. Section 9(4) of CGST Act, 2017 – Tax on supplies from unregistered persons to registered persons (currently applicable only in notified cases).
3. Section 5(3) & 5(4) of IGST Act, 2017 – Similar provisions for inter-State supplies.
4. Relevant Rules – Rule 46 (Tax invoice), Rule 47 (Time limit for issuing invoice), Rule 47A (Special provision for self-invoice in certain services under RCM), Rule 36 (ITC).

2. Cases where RCM applies

A. Services Notified under Section 9(3)

Entry	Description	SAC Code	GST Rate	Notification No.	Applicability
1	GTA – Transport of goods by road	9965	5% (No ITC) / 12% (With ITC)	13/2017-CT (Rate)	01.07.2017
2	Legal Services	9982	18%	13/2017-CT (Rate)	01.07.2017
3	Arbitral Tribunal	9982	18%	13/2017-CT (Rate)	01.07.2017
4	Sponsorship	9983	18%	13/2017-CT (Rate)	01.07.2017
5	Govt. services to business entities (exclusions apply)	Various	18%	13/2017-CT (Rate)	01.07.2017
5A	Govt. rent of immovable property	9972	18%	13/2017-CT (Rate)	01.07.2017
5AA	Rent of residential dwelling to registered person	9972	18%	05/2022-CT (Rate)	18.07.2022
5AB	Rent of immovable property (non-residential)	9972	18%	09/2024-CT	10.10.2024
5B	Transfer of development rights / FSI to promoter	9972	As applicable	05/2019-CT (Rate)	01.04.2019
5C	Long-term lease of land to promoter	9972	As applicable	05/2019-CT (Rate)	01.04.2019
6	Director’s services	9991	18%	13/2017-CT (Rate)	01.07.2017
7	Insurance agent services	9971	18%	13/2017-CT (Rate)	01.07.2017
8	Recovery agent services	9985	18%	13/2017-CT (Rate)	01.07.2017
9	Music composer, photographer, artist – copyright	9983	12% / 18%	13/2017-CT (Rate)	01.07.2017
9A	Author – copyright to publisher	9983	12% / 18%	22/2019-CT (Rate)	01.10.2019
10	Overseeing Committee to RBI	9991	18%	13/2017-CT (Rate)	01.07.2017
11	Vessel transport from outside India to customs	9965	5%	10/2017-IGST (Rate)	01.07.2017
12	Direct Selling Agents (DSAs)	9971	18%	13/2017-CT (Rate)	01.07.2017
13	Business Facilitator to bank	9971	18%	29/2018-CT (Rate)	01.01.2019
14	Agent of business correspondent to BC	9971	18%	29/2018-CT (Rate)	01.01.2019
15	Security services	9985	18%	29/2018-CT (Rate)	01.01.2019
16	Renting of motor vehicle to body corporate (fuel incl.)	9966	5%	29/2019-CT (Rate)	31.12.2019
17	Lending of securities under SEBI Scheme	9991	Exempt / As applicable	22/2019-CT (Rate)	01.10.2019
18	Import of Services	Various	As applicable	10/2017-IGST (Rate)	01.07.2017

B. Goods Notified under Section 9(3)

Goods	Supplier	Recipient	GST Rate
Cashew nuts, not shelled or peeled	Agriculturist	Registered person	5%
Bidi wrapper leaves (tendu)	Agriculturist	Registered person	18%
Raw cotton	Agriculturist	Registered person	5%
Supply of lottery	State Govt./Local authority	Lottery distributor	As applicable

C. Section 9(4) – Supplies from Unregistered Persons

Section 9(4) originally mandated that a registered person receiving goods or services from an unregistered supplier must pay GST under RCM. However, due to compliance burden, the provision was later restricted to specified notified categories.

Current Applicability:

• Applicable only for supplies of specified goods/services notified by the Government.
• Major example: Promoters in the real estate sector must pay GST under RCM on procurement of goods/services from unregistered suppliers exceeding 20% of total purchases (calculated project-wise).
• If such procurement exceeds the 20% limit, GST is payable on the excess.
• Certain supplies like cement from unregistered suppliers are taxable under RCM irrespective of the 20% threshold.

3. Time of Supply under RCM

For Goods (Section 12(3)):

Earlier of:

1. Date of receipt of goods, or
2. Date of payment, or
3. 30 days from the date of supplier’s invoice

For Services (Section 13(3)):

Earlier of:

1. Date of payment, or
2. 60 days from the date of supplier’s invoice

4. ITC eligibility on RCM

• Payment must be made in cash through the Electronic Cash Ledger.
• ITC can be claimed in the same month when tax is paid, subject to Section 16 conditions.
• Self-invoicing is required under Rule 46 if supplier is unregistered.

5. Self-Invoicing under Reverse Charge

When you buy goods or services from an unregistered supplier and GST is payable under the Reverse Charge Mechanism (RCM), you must issue a self-invoice (Section 31(3)(f) CGST Act).

When Required:

• Purchase from unregistered suppliers covered under RCM.
• Import of services for business.
• Notified goods/services (e.g., tendu leaves, silk yarn, GTA services).

Contents:

• Your own name, address, GSTIN.
• Invoice number & date.
• Description, value, GST rate & amount.
• Place of supply / delivery.

Time Limit:

• Goods → On receipt.
• Services → On payment date.

Also issue a Payment Voucher (Section 31(3)(g)) at payment time.
Failure to self-invoice can attract penalties under Section 122.

6. Compliance tips and common mistakes

RCM Compliance Steps:

1. Identify if transaction falls under RCM.
2. Issue self-invoice (if supplier is unregistered).
3. Pay GST through cash ledger.
4. Report in GSTR-3B (Table 3.1(d)) and GSTR-1 (if applicable).
5. Claim ITC in GSTR-3B (Table 4(A)(3)).

Common Mistakes to Avoid

1. Treating all purchases from unregistered suppliers as RCM – only notified cases apply now.
2. Missing time of supply deadlines.
3. Forgetting self-invoice in unregistered cases.
4. Claiming ITC without making actual cash payment.

Reverse Charge Mechanism ensures tax is collected in high-risk or unorganized sectors. While it increases compliance responsibility for recipients, proper record-keeping and timely payment help avoid penalties and interest.