Reverse Charge under GST: RCM Liability, Rent, ITC and Return Filing

Summary: Reverse charge under GST shifts responsibility for paying tax from the supplier to the recipient for notified supplies. This practical guide explains how businesses should identify reverse charge liability by examining the transaction, supplier and recipient status, applicable notification, effective date and exemptions. It distinguishes Section 9(3) notified categories from the narrower Section 9(4) framework for specified purchases from unregistered suppliers, alongside the corresponding IGST provisions. The discussion covers commercial property rent from unregistered landlords, residential dwelling rent, composition taxpayer exclusions and the importance of not applying later notification amendments retrospectively. Detailed illustrations address rent of ₹50,000, associated CGST and SGST liability, and the accounting treatment of expenses, pending input tax credit and cash payments. The article also discusses notified goods and services, including metal scrap, agricultural products, goods transport agency services, legal services, sponsorship and government-related supplies. It explains self-invoices, payment vouchers, time-of-supply provisions, GSTR-3B disclosure and the distinction between payment of RCM and eligibility for input tax credit. Practical reporting examples show how liability and eligible credit may be reflected in the return, while emphasising that credit is subject to statutory conditions and cannot be used to discharge the reverse charge liability itself. The guide also addresses recordkeeping, reconciliation and departmental scrutiny, stressing that neither the absence of GST on an invoice nor a broad expense classification establishes the correct tax treatment without examining the relevant statutory conditions.

Reverse Charge under GST: Who Must Pay, When to Pay and How to Claim Credit
A practical guide to rent, notified goods and services, accounting entries, return reporting and departmental scrutiny

The tax that does not appear on the supplier’s bill

A registered trader pays ₹50,000 every month for a shop taken on rent from an unregistered landlord. The landlord issues an ordinary rent receipt without GST. The trader records the rent in his books and assumes that there is no further tax compliance.

That assumption can be costly. From 10 October 2024, renting immovable property other than a residential dwelling by an unregistered person to a registered person was brought under the reverse charge mechanism. Composition taxpayers were subsequently excluded from this particular entry from 16 January 2025. A regular registered tenant must therefore examine the liability even though the landlord has not charged GST.

The central principle is identification. Before paying tax—or demanding it—the parties must identify the supply, the applicable notification, the status of the supplier and recipient, the effective date and any exemption.

This article explains the principal RCM categories and the practical steps involved. The illustrations are independent examples. References to central tax notifications must be read with the corresponding State/Union Territory and integrated tax provisions. Rates and exemptions must always be checked for the relevant supply period; a notification shifting liability to the recipient is not, by itself, the notification prescribing the rate.

What reverse charge actually means

Under the ordinary system, the supplier charges GST and pays it to the Government. Under reverse charge, the statutory responsibility shifts to the recipient for specified supplies.

The principal routes are:

Provision	What it covers
Section 9(3), CGST Act	Notified categories of goods or services
Section 9(4), CGST Act	Notified supplies from unregistered suppliers received by notified classes of registered persons
Sections 5(3) and 5(4), IGST Act	Corresponding reverse charge provisions for integrated tax

Notification No. 4/2017–Central Tax (Rate) is the principal notification for goods, while Notification No. 13/2017–Central Tax (Rate) governs notified services. Imported services require examination under the IGST framework, including Notification No. 10/2017–Integrated Tax (Rate).

Two misconceptions should be removed at the outset.

First, every purchase from an unregistered person is not presently subject to RCM. The present Section 9(4) is a limited, notification-based provision, not a general tax on all unregistered purchases.

Second, registration of the supplier does not automatically remove RCM. Several Section 9(3) entries apply by reference to the nature of the supply and the specified parties, irrespective of whether the supplier is registered.

Illustration: A registered shop buys ordinary stationery from an unregistered local seller. That fact alone does not create RCM. However, the same shop taking commercial premises on rent from an unregistered landlord may fall within a specific notified entry.

When did RCM come into force?

GST commenced on 1 July 2017, but every RCM category did not commence on that date. Later notifications added categories or changed their conditions.

The following dates are particularly useful:

Category or change	Relevant commencement
Original notified goods and services under Notifications 4/2017 and 13/2017	1 July 2017
Specified Government sales of used goods, confiscated goods, waste and scrap	Notification 36/2017 dated 13 October 2017
Raw cotton supplied by an agriculturist	15 November 2017
Government/local authority renting to registered persons	25 January 2018
Priority Sector Lending Certificates	Notification 11/2018 dated 28 May 2018
Individual DSA services to banks/NBFCs	Notification 15/2018 dated 26 July 2018
Specified security services, business facilitators and agents of business correspondents	1 January 2019
Specified development rights/FSI and long-term land lease to promoters	1 April 2019
Motor vehicle renting and securities lending entries	1 October 2019; motor vehicle entry subsequently revised from 1 January 2020
Specified mint essential oils	1 October 2021; description expanded from 1 January 2023
Residential dwelling rented to registered persons	18 July 2022
Personal residence exemption for qualifying registered proprietors	1 January 2023
Commercial/non-residential immovable property rented by unregistered persons	10 October 2024
Specified metal scrap purchased from unregistered persons	10 October 2024
Thirty-day self-invoice rule under Rule 47A	1 November 2024
Composition exclusion for the specified commercial rent entry; sponsorship supplier restriction	16 January 2025

These dates arise from different amendments. A present-day entry cannot simply be applied backwards to an earlier financial year.

Commercial rent paid to an unregistered landlord

Entry 5AB of Notification No. 13/2017, inserted through Notification No. 09/2024–Central Tax (Rate), covers renting of immovable property other than a residential dwelling by an unregistered person to the specified registered recipient.

For an ordinary taxable commercial letting, GST is generally payable at 18%. The tenant pays the tax to the Government, not to the unregistered landlord.

Illustration: Shop rent in Mysuru

Mysuru Traders, a regular registered dealer, rents a shop from an unregistered individual for ₹50,000 per month. Assume that the transaction is an intra-State supply in Karnataka.

Particulars	Amount
Rent payable to landlord	₹50,000
CGST under RCM at 9%	₹4,500
Karnataka SGST under RCM at 9%	₹4,500
Total RCM payable to Government	₹9,000

The landlord receives ₹50,000. The tenant separately discharges ₹9,000 under RCM.

The landlord’s small turnover does not, by itself, exempt the tenant from an entry that specifically covers supplies by an unregistered landlord. Equally, the landlord’s failure to mention RCM in the rent receipt does not remove the tenant’s statutory responsibility.

Before deciding whether CGST plus SGST or IGST applies, examine the location-of-supplier and place-of-supply provisions. The above illustration assumes an intra-State transaction; the tenant’s GSTIN alone is not a complete tax-head analysis.

Commercial rent: four situations that should not be mixed up

Landlord	Tenant	Position under the specified commercial rent entry
Unregistered	Regular registered taxpayer	RCM applies from 10 October 2024, subject to the entry and applicable exemption
Unregistered	Composition taxpayer	Excluded from this entry from 16 January 2025
Registered	Regular registered taxpayer	Ordinary taxable commercial renting generally falls under forward charge
Unregistered	Unregistered tenant	Entry 5AB does not apply merely because rent is paid

The composition exclusion is specific to this entry. It is not a general declaration that composition taxpayers never pay RCM.

For composition taxpayers, the intervening period from 10 October 2024 to 15 January 2025 was regularised on an “as is where is” basis through Circular No. 245/02/2025-GST. That expression should not be casually translated into an unconditional refund entitlement.

Illustration: A composition dealer pays ₹20,000 monthly rent to an unregistered shop owner in February 2025. The dealer is outside Entry 5AB because of the amended recipient description. The officer must examine that description before proposing RCM.

Residential rent is a separate category

From 18 July 2022, renting a residential dwelling to a registered person was brought under RCM through Entry 5AA. Here, the supplier description is “any person”; it is not restricted to an unregistered landlord.

Illustration: A company takes a residential flat on rent under an agreement in the company’s name. It must examine Entry 5AA even if the landlord holds GST registration. Whether the resulting tax is eligible for ITC is a separate question and depends on the use and statutory restrictions.

A specific exemption applies from 1 January 2023 where a registered proprietor rents a residential dwelling in his personal capacity, for his own residence, on his own account and not on account of the proprietorship concern.

Illustration: Mr. Kumar runs a GST-registered hardware business but personally rents a house for his family. If the prescribed conditions are met, his business GST registration does not, by itself, make his personal house rent taxable.

The distinction is factual. A house used as a business office cannot be treated as the proprietor’s exempt personal residence merely because the building was originally constructed for residential use.

RCM in the books: a complete rent illustration

Recording rent, recognising an RCM liability and actually availing ITC are three different events.

Using the ₹50,000 shop-rent example, the following is one practical accounting method.

A. Record the rent

Account	Debit	Credit
Rent expense	₹50,000	—
Landlord payable	—	₹50,000

B. Recognise RCM liability

Where credit is expected to be eligible, a separate pending-credit account can avoid treating unpaid RCM as already available ITC.

Account	Debit	Credit
RCM tax pending eligibility/payment—CGST	₹4,500	—
RCM tax pending eligibility/payment—SGST	₹4,500	—
RCM payable—CGST	—	₹4,500
RCM payable—SGST	—	₹4,500

C. On actual discharge of RCM

Clear the RCM payable accounts against the relevant cash-ledger/payment clearing accounts. Transfer the pending amount to eligible input CGST and SGST only when the payment and other ITC conditions are fulfilled.

These ledger names are illustrative, not statutory account names. The essential point is that a debit in an “Input GST” ledger does not establish payment of RCM or lawful availment of credit in the return. Circular No. 211/5/2024-GST expressly links self-invoice-based credit to payment of tax and the conditions of Sections 16 and 17.

If ITC is ineligible, the tax should ordinarily be treated as part of the relevant cost or expense rather than shown as recoverable credit.

How to show RCM and ITC in GSTR-3B

For a regular monthly filer, the practical sequence is:

Identify the taxable RCM supply.

Determine the correct period, value, rate and tax heads.

Obtain the supplier invoice or issue the prescribed self-invoice, as applicable.

Report the liability in Table 3.1(d).

Discharge RCM through the cash ledger.

Claim eligible credit in the appropriate ITC table.

Domestic RCM credit is reported in Table 4(A)(3). Credit relating to imported services is reported in Table 4(A)(2). Existing ITC cannot be used to discharge RCM liability.

Return illustration

For the ₹50,000 rent:

GSTR-3B entry	Taxable value	CGST	SGST
Table 3.1(d): inward supplies liable to reverse charge	₹50,000	₹4,500	₹4,500
Table 4(A)(3): eligible domestic RCM ITC	—	₹4,500	₹4,500

Eligible credit may be claimed in the same return in which the corresponding RCM is discharged, provided the legal conditions are satisfied. There is no general rule requiring every taxpayer to wait until the following month. However, the RCM liability itself remains payable in cash.

Self-invoiced purchases from an unregistered landlord will not appear in GSTR-2B through that landlord’s GSTR-1. The recipient must not omit the liability merely because the portal has not auto-populated it. The GST portal permits verification and modification of the relevant GSTR-3B figures.

The tenant also does not report this inward rent as its own outward supply in GSTR-1.

Payment of RCM does not guarantee ITC

The obligation to pay and the entitlement to credit must be examined separately. Sections 16 and 17 continue to apply to RCM tax.

Illustration: A business pays RCM on a service used partly for taxable business activities and partly for an ineligible purpose. It cannot claim the entire tax merely because the whole amount was paid in cash. The relevant restriction or apportionment must be applied.

This distinction is especially important for businesses operating under no-ITC rate conditions and for composition taxpayers. “RCM paid” is not a substitute for an eligibility examination.

Interest and penalties paid for a default are also not the RCM tax on the inward supply and should not be added to the input tax credit claim.

Self-invoice and payment voucher: do not overlook the documents

Where the supplier is unregistered and the registered recipient is liable under the relevant reverse charge provisions, Section 31(3)(f) requires a recipient-issued invoice.

From 1 November 2024, Rule 47A prescribes issuance within thirty days from receipt of the supply. This is a time limit for self-invoicing; self-invoicing itself was not introduced for the first time on that date.

The recipient must also attend to the payment-voucher requirement under Section 31(3)(g). Where the supplier is registered and issues the relevant tax invoice, the recipient should not automatically prepare a second self-invoice merely because the supply attracts RCM.

Illustration: An unregistered landlord supplies a month’s commercial renting service to a regular registered tenant. The tenant should maintain the lease, rent evidence, self-invoice, payment voucher where required, cash-payment proof and return reconciliation. A rent receipt alone does not complete all RCM documentation.

When does the tax become payable?

The time of supply determines the tax period. It cannot be postponed simply because the accounts are finalised later.

For services, the amended Section 13(3), effective from 1 November 2024, distinguishes cases where the supplier issues the invoice from cases requiring a recipient-issued invoice. Broadly, the relevant comparisons include:

Payment and the day immediately following sixty days from the supplier’s invoice, where the supplier is required to issue the invoice.

Payment and the recipient’s invoice date, where the recipient must issue the invoice.

Special rules and statutory fallback provisions must also be considered where applicable.

Illustration: For a service requiring self-invoicing, payment is made on 5 December and the self-invoice is issued on 20 December. The earlier payment date becomes relevant. Delaying the invoice does not automatically defer the tax.

For goods, Section 12(3) has its own rule involving receipt of goods, payment and the period linked to the supplier’s invoice. The service rule should not be copied into a goods transaction.

Which goods come under RCM?

The following table summarises the goods entries in Notification No. 4/2017, as amended. The supplier and recipient descriptions are integral to the liability.

Goods	Specified supplier → recipient	Illustration
Cashew nuts, not shelled or peeled	Agriculturist → registered person	A registered processor purchases qualifying raw cashew nuts directly from an agriculturist.
Bidi wrapper/tendu leaves	Agriculturist → registered person	A registered bidi manufacturer buys tendu leaves from an agriculturist.
Tobacco leaves	Agriculturist → registered person	A registered tobacco business purchases qualifying leaves from the grower.
Specified mint essential oils, including the notified peppermint and other mint oils	Unregistered person → registered person	A registered manufacturer purchases qualifying mentha oil from an unregistered supplier.
Silk yarn under headings 5004–5006	Person manufacturing yarn from raw silk or silkworm cocoons → registered person	A registered silk dealer buys yarn from the specified manufacturer.
Raw cotton	Agriculturist → registered person	A registered ginning unit buys raw cotton from a farmer.
Lottery	State Government/UT/local authority → lottery distributor or selling agent	A distributor receives the notified lottery supply from the State.
Specified used vehicles, seized/confiscated goods, old and used goods, waste and scrap	Specified Government/local authority supplier → registered person	A registered buyer purchases qualifying old equipment at a government auction.
Priority Sector Lending Certificates	Registered person → registered person	A registered bank acquires PSLCs from another registered person.
Metal scrap under Chapters 72–81	Unregistered person → registered person	A registered foundry buys qualifying metal scrap from an unregistered collector.

Several practical cautions follow.

A purchase of raw cotton from a trader is not automatically the same as a purchase from an agriculturist. A silk yarn trader is not necessarily the manufacturer specified in the entry. Plastic or paper scrap does not fall within the metal-scrap entry merely because the invoice uses the word “scrap”. The Government-goods entry also contains an Indian Railways exclusion in the amended supplier description.

Metal scrap illustration

A registered foundry purchases ₹1,00,000 of qualifying metal scrap from an unregistered dealer after 10 October 2024.

The foundry must classify the goods and apply the rate in force for that classification. If the applicable rate is 18%, the illustrative RCM is ₹18,000. The 18% assumption in this example is not a declaration that every item sold as scrap has the same rate. The RCM commencement comes from Notification No. 06/2024–Central Tax (Rate).

Which services come under RCM?

The following table brings together the principal service categories. The examples assume that the supply is taxable and that no applicable exemption or valid forward-charge option removes RCM.

Service	Who pays and a practical illustration
GTA transport of goods by road	The notified recipient, generally identified with reference to freight liability, where the GTA has not validly adopted forward charge. A registered factory paying qualifying GTA freight examines RCM.
Legal services by an individual advocate, including senior advocate, or firm of advocates	The taxable-territory business recipient, subject to exemptions. A trading company engaging an advocate for litigation examines RCM on the fee.
Arbitral tribunal services	The specified business recipient. A company receiving taxable arbitration services examines RCM.
Sponsorship	A body corporate or partnership recipient where the supplier is not a body corporate under the amended entry from 16 January 2025.
Specified Government/local authority services	The specified business recipient, subject to exclusions and exemptions. A payment to Government must first be classified; it is not automatically taxable.
Government/local authority renting	The specified registered recipient. A registered trader renting a qualifying municipal shop examines RCM.
Residential dwelling rent	The registered recipient, subject particularly to the proprietor’s personal-residence exemption.
Non-residential immovable property rent from an unregistered person	The registered recipient other than a composition taxpayer under the amended entry.
Transfer of development rights or FSI for construction by a promoter	The promoter, subject to the special real-estate scheme and exemptions.
Land lease of thirty years or more for a promoter’s project	The promoter, subject to the relevant conditions.
Director’s services	The company/body corporate receiving the taxable service in the specified capacity.
Insurance agent’s services	The person carrying on insurance business. An insurer receiving taxable agency services examines RCM.
Recovery agent’s services	The bank, financial institution or NBFC receiving the service.
Specified copyright services by composers, photographers, artists and similar persons	The specified music company, producer or similar recipient.
Author’s literary copyright services	The publisher, unless the author validly exercises and complies with the prescribed forward-charge option.
Overseeing Committee members’ services	RBI.
Individual DSA services	The bank/NBFC; the entry excludes the specified corporate/firm supplier categories.
Business facilitator services	The banking company.
Agent of a business correspondent supplying to a business correspondent	The business correspondent receiving the service.
Supply of security personnel	The specified registered recipient where the supplier is not a body corporate, subject to recipient exclusions.
Specified passenger motor vehicle renting, fuel included	The body corporate recipient where the non-body-corporate supplier meets the entry’s conditions.
Securities lending under the specified SEBI scheme	The borrower of securities.

Three distinctions deserve particular attention

First, not every road transporter is a GTA. The character of the service and consignment-note requirement must be examined; a transport expense ledger is not sufficient evidence by itself.

Second, under the security-services entry, the composition exclusion concerns the recipient. A registered proprietary security agency does not escape the entry merely because it holds a GSTIN.

Third, the passenger motor vehicle renting entry specifies a body corporate recipient. It should not be expanded to every registered customer hiring a vehicle. The supplier’s constitution, fuel-inclusive arrangement and invoice charging conditions matter.

Imported services and real-estate procurements need separate attention

Imported services fall under the IGST framework. A registered Indian business engaging an overseas consultant must examine whether the transaction satisfies the statutory conditions for import of services, the relevant RCM notification and any exemption. The fact that the foreign invoice carries no Indian GST does not settle the issue.

Illustration: An Indian manufacturer receives taxable technical consultancy from an overseas supplier. If the import and RCM conditions are met, it discharges IGST and examines eligible credit under the imported-services ITC heading.

Promoters also require a separate working for notified Section 9(4) procurements from unregistered suppliers. The special real-estate framework cannot be replaced by the general statement that “all unregistered purchases attract RCM”. Likewise, development rights and long-term land leases require their own exemption, valuation and timing analysis.

Old omissions: pay attention to credit as well as tax

Suppose an audit discovers that a business failed to discharge RCM on services received from an unregistered supplier in an earlier year.

Circular No. 211/5/2024-GST clarifies that, for the specified self-invoice cases, the relevant financial year for Section 16(4) is the financial year in which the recipient issues the invoice under Section 31(3)(f). Credit remains subject to payment and the conditions and restrictions of Sections 16 and 17.

Illustration: A taxpayer discovers an old omitted RCM transaction and issues the required self-invoice later. The officer should not reject credit merely by mechanically linking Section 16(4) to the original supply year without considering the circular.

But the circular is not permission to delay invoices. It expressly recognises interest on delayed tax and possible penal consequences for delayed invoicing. The thirty-day rule must also be considered for supplies governed by Rule 47A.

How should the department initiate an RCM demand?

An RCM examination should begin with a transaction schedule, not a blanket percentage applied to expense accounts.

A properly supported working should identify:

Supplier and recipient.

Nature and value of supply.

Relevant invoice, agreement or supporting document.

Exact notification entry.

Supplier and recipient conditions.

Effective date and applicable exemption.

Time of supply, rate and tax heads.

Tax already discharged and the balance, if any.

Separate interest and penalty grounds.

Relevant ITC treatment, without assuming that credit eliminates the cash-payment obligation.

This approach follows the notification-driven nature of RCM. The liability depends on the notified supply and specified parties, not merely the ledger description.

Illustration: An officer notices ₹12 lakh under “rent”. Before demanding tax on the whole amount, the officer should distinguish personal residential rent, registered-landlord commercial rent, unregistered-landlord rent, relevant commencement dates and any composition exclusion.

Similarly, “professional charges” cannot all be treated as advocate services, and “freight” cannot all be treated as GTA service. The classification must be demonstrated.

A monthly discipline that prevents most disputes

A business should maintain a small RCM register alongside its purchase and expense records:

Field	Purpose
Supplier name, GSTIN or unregistered status	Establish supplier condition
Nature of supply and notification entry	Establish legal coverage
Invoice/self-invoice and receipt date	Support documentation and timing
Taxable value, rate and tax heads	Support computation
Cash payment and GSTR-3B period	Establish discharge
Eligible/ineligible ITC and reason	Prevent automatic credit claims

At month-end, reconcile the register with rent, freight, legal fees, security charges, director-related payments, foreign service payments and relevant goods purchases.

Do not expect Table 3.1(d) and Table 4(A)(3) always to be identical. Imported-service credit uses another heading, some credit may be ineligible, and timing differences may exist. Every difference should nevertheless be explainable.

Conclusion

Reverse charge is not a tax on every payment to an unregistered person. Nor is it a tax that can be ignored because the supplier has not mentioned GST. It is a specific statutory responsibility arising when the transaction satisfies the applicable notification.

For the taxpayer, the practical sequence is straightforward: identify the entry, check the date and exemption, prepare the documents, discharge tax in cash, report it correctly and claim only eligible credit.

For the department, the responsibility is equally clear: identify the transaction and establish the legal conditions before proposing recovery. A broad expense heading cannot replace an examination of the supply.

The ordinary rent receipt, freight bill or professional-fee voucher may look simply. The GST consequence depends on who supplied what, to whom, and when. Getting those questions right is the foundation of sound RCM compliance.