Reverse Charge Under GST: A Practical RCM Guide for Small Business

Under the reverse charge mechanism (RCM), the buyer of a supply pays the GST to the government instead of the seller. It applies only to goods and services the government has specifically notified, or that you import. For small businesses, the common ones are transport through a goods transport agency (GTA), an advocate’s legal fees, security guards hired from a non-company agency, and rent paid to an unregistered landlord for commercial property. You pay this tax in cash, and in most cases you claim it straight back as input tax credit (ITC).

ITC is the GST you paid on business purchases that you can deduct from the GST you owe on sales.

What is reverse charge in GST?

Normally the supplier charges GST on the invoice and pays it to the government. This is called forward charge. Under reverse charge, the supplier does not charge GST, and you, the recipient, work out the tax and pay it yourself.

RCM arises in three situations:

• Section 9(3): notified services and goods, wherever the supplier is registered or not. Examples are GTA, legal services and security services.
• Section 9(4): purchases from unregistered suppliers, but only for classes of buyers the government notifies, mainly real estate promoters. An ordinary small business buying stationery from an unregistered shop does not pay RCM.
• Import of services: for example, paying a foreign software company. This is covered under the IGST Act.

Which services are under RCM for a small business?

These are the long-standing entries in Notification 13/2017-Central Tax (Rate), as amended, that most often affect small businesses.

Service	Supplier	You pay RCM if you are…	GST rate
Goods transport by road (GTA)	A GTA that has not opted to pay GST itself	A factory, society, co-operative, registered person, body corporate, partnership firm or casual taxable person	5%
Legal services	An individual advocate or a firm of advocates	A business entity (small businesses below the registration threshold in the previous year are exempt)	18%
Security services (supply of security personnel)	Anyone other than a body corporate	A registered person (not composition taxpayers, and not those registered only for TDS)	18%
Renting of commercial (non-residential) immovable property	An unregistered person	A registered person, other than a composition taxpayer (from 16 January 2025)	18%
Renting of a residential dwelling	Any person	A registered person, unless a proprietor rents it as their own home in a personal capacity	18%
Director’s services	A director	The company or body corporate	18%
Sponsorship services	Anyone other than a body corporate (from 16 January 2025)	A body corporate or partnership firm	18%
Services of insurance agents and recovery agents	The agent	An insurance company, or a bank/NBFC	18%

Watch out: The RCM lists change. For example, commercial rent from unregistered landlords was added from 10 October 2024, composition taxpayers were excluded from it from 16 January 2025, and sponsorship by body corporates moved to forward charge from the same date. Always check the latest notification before you rely on a list.

What changed for GTAs on 22 September 2025?

After the 56th GST Council meeting, the forward-charge option for GTAs became 5% without ITC or 18% with ITC. The 18% option was 12% before. The 5% rate under RCM did not change.

A GTA that wants to pay tax itself must opt in by filing Annexure V on the portal between 1 January and 31 March for the next financial year. Once it opts in, the choice carries forward. Ask your transporter which option they use. If their invoice charges no GST and says “tax payable on reverse charge”, the tax is yours to pay.

How do I pay RCM: step by step

1. Identify RCM purchases when you book bills: freight, legal fees, rent, security.
2. Issue a self-invoice if the supplier is unregistered. Under Rule 47A, you must issue it within 30 days of receiving the supply (from 1 November 2024). When you pay the supplier, issue a payment voucher.
3. Work out the time of supply. For services, it is the earlier of the date you pay and the 61st day after the supplier’s invoice. Where you issue a self-invoice, it is the earlier of the payment date and the self-invoice date. For goods, it is the earliest of receiving the goods, paying for them, or the 31st day after the supplier’s invoice.
4. Report the liability in Table 3.1(d) of GSTR-3B for that month.
5. Pay in cash. RCM tax cannot be paid using ITC from your electronic credit ledger.
6. Claim ITC on the same amount in Table 4(A)(3) of the same GSTR-3B (or 4(A)(2) for imported services), if the purchase is for business and not blocked.
7. Check the RCM Liability/ITC Statement on the portal (Services → Ledger). Since the August 2024 tax period, it compares RCM tax paid with RCM ITC claimed and flags excess claims.

Example: A registered shop in Jaipur pays ₹50,000 a month rent for its premises to an unregistered landlord. Under RCM it pays 18% = ₹9,000 (₹4,500 CGST + ₹4,500 SGST) in cash through GSTR-3B and issues a self-invoice. In the same return, it claims ₹9,000 as ITC. The net cost is nil, but the cash leaves the business first and comes back as credit.

Example: A manufacturer (a registered person) pays a GTA ₹20,000 freight for an intra-state trip, and the GTA has not opted for forward charge. RCM at 5% = ₹1,000 (₹500 CGST + ₹500 SGST), paid in cash and then claimed as ITC.

Can I claim ITC on GST paid under reverse charge?

Yes, generally in the same month you pay it. The normal ITC conditions still apply:

• The supply must be used for your business.
• It must not be a blocked credit under Section 17(5). For example, RCM paid on renting a car to carry staff may be blocked.
• Composition taxpayers cannot claim ITC at all. They pay RCM through CMP-08. See our composition scheme guide.

The 180-day payment rule does not apply to RCM purchases. See ITC reversal for non-payment within 180 days.

Does an unregistered business pay RCM?

No. RCM under Section 9(3) is paid by the recipient described in the notification, and nearly all entries require the recipient to be registered or to be a body corporate, firm or similar.

But your RCM purchases can count for registration in some cases. Section 24 requires anyone liable to pay tax under reverse charge to register, whatever their turnover. Check our guide to GST registration limits if you are close to the limit.

Common mistakes

• Not paying RCM on rent to an unregistered landlord for a shop or office from October 2024 onwards.
• Paying RCM using ITC instead of cash. The portal and the law require cash.
• Assuming every purchase from an unregistered seller is under RCM. Only notified supplies are.
• Missing GTA freight because the transporter’s bill shows no GST.
• Claiming ITC on RCM without paying the tax, which the RCM statement on the portal now flags.
• Not issuing self-invoices within 30 days for supplies from unregistered persons.

What to do next

Make a list of your regular suppliers and mark which ones fall under RCM. Most businesses have only two or three: transport, legal and rent. Then add an RCM check to your monthly GSTR-3B routine.

If you’d like help setting this up or catching up on missed RCM, our GST return filing service covers RCM workings every month. You can also request a callback for advice on a specific arrangement.