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| TL;DR Summary |
| Under reverse charge, the buyer – not the supplier – pays GST directly to the government, and this liability must be settled in cash, never through the ITC balance. This 2026 update covers the current RCM list (including October 2024 and January 2025 changes), how to correctly claim and report ITC on RCM in GSTR-3B, and the compounding penalty risk when RCM liability is missed and only surfaces during audit. |
Under the reverse charge mechanism, the buyer pays GST directly to the government instead of the supplier, and this liability must be settled in cash through the electronic cash ledger, not offset against existing ITC. Common triggers include director’s fees, legal services, unregistered commercial rent, metal scrap, and any import of services, with ITC claimable in the same GSTR-3B return once the liability is paid.
The reverse charge mechanism in GST is one of those rules that looks small on paper and then turns up as a big number during an audit. It is rarely deliberate. A director’s sitting fee is booked as an expense, office rent goes to an unregistered landlord, a software subscription is paid to a company in Singapore, and nobody stops to ask who pays the GST on it.
This is an updated guide for 2026. Several RCM entries have moved since 2024, so a few things you may have learnt earlier are no longer correct.
What RCM Means – Recipient Pays GST, Not the Supplier
Normally, the supplier adds GST to the invoice, collects it from you, and pays it to the government. Under reverse charge, that flow is turned around. The supplier bills you without GST, and you, the buyer, work out the tax and pay it directly to the government.
Three things follow from that, and they trip people up.
● You must pay RCM in cash, through your electronic cash ledger. You cannot use your input tax credit balance to settle it, however large that balance is.
● If you are liable to pay tax under reverse charge, GST registration is compulsory. The Rs. 20 lakh or Rs. 40 lakh turnover threshold does not protect you.
● Where the supplier is unregistered, you have to raise the invoice yourself. This is the self-invoice, and since Rule 47A came in (effective November 2024), it must be issued within 30 days of receiving the goods or services.
The law sits in Sections 9(3), 9(4) and 9(5) of the CGST Act. Section 9(3) covers notified goods and services. Section 9(4) covers notified purchases from unregistered suppliers. Section 9(5) puts the tax on the e-commerce operator for certain services, such as cab rides booked through an app.
The Full List of Goods & Services Covered Under RCM
One warning first. RCM entries are notification-driven and they change. The main sources are Notification 4/2017 (goods) and Notification 13/2017 (services), both Central Tax (Rate), as amended. Treat the list below as a working checklist, not a permanent one.
Goods commonly under RCM
● Cashew nuts (not shelled or peeled), bidi wrapper leaves, tobacco leaves and raw cotton, supplied by an agriculturist to a registered person.
● Silk yarn, supplied by the person who manufactures it from raw silk or cocoons.
● Used vehicles, seized goods, waste and scrap supplied by the Government or a local authority to a registered person.
● Lottery, and priority sector lending certificates between registered persons.
● Metal scrap falling under Chapters 72 to 81, supplied by an unregistered person to a registered person. A newer entry, in force from 10 October 2024. Scrap sold between two registered persons is not RCM, but it does attract 2% TDS under Section 51.
Services commonly under RCM
● Goods transport agency (GTA) services, where the GTA has not opted for forward charge. If the GTA charges GST on its invoice, you do not pay RCM on it.
● Legal services from an individual advocate, senior advocate or a firm of advocates to a business entity.
● Services of an arbitral tribunal to a business entity.
● Director’s services to the company or body corporate. Sitting fees and commission are the usual ones people forget.
● Security services (supply of security personnel) by a person other than a body corporate to a registered person.
● Renting of a motor vehicle by a non-body-corporate supplier to a body corporate, where the supplier is not charging tax at the full rate.
● Insurance agent, recovery agent and business facilitator services to banks, NBFCs and financial institutions.
● Services supplied by the Government or a local authority to a business entity, apart from the excluded ones.
● Import of services, covered separately below.
● Renting of commercial immovable property by an unregistered landlord to a registered tenant. This came in from 10 October 2024. Then, from 16 January 2025, composition taxpayers were taken out of this entry.
● Sponsorship services – but check who the supplier is. From 16 January 2025, the entry was reworded to cover suppliers “other than a body corporate”. Sponsorship supplied by a body corporate now goes under forward charge, and the supplier charges GST. These invoices need a second look, not a rule of thumb.
And here is the correction most businesses need. Buying from an unregistered supplier does not automatically mean RCM. Section 9(4) is limited to notified cases, which today mainly means promoters in real estate, metal scrap and the commercial rent entry above. Stationery from an unregistered shop is not reverse charge.
RCM on Import of Services – A Common Business Blind Spot
This is the one we find most often.
If you pay a foreign supplier for a service used in India, IGST is payable by you under reverse charge. There is no threshold and no exemption for small amounts. The foreign vendor cannot collect Indian GST, so the law hands the job to you.
Look at your foreign currency payments and you will usually find some of these: cloud hosting and SaaS subscriptions, a design or marketing agency abroad, a foreign consultant, commission to an overseas sales agent, software licences, and management or royalty charges paid to a parent company. Payments to a related party abroad deserve extra care, because RCM can apply between related persons even where no payment has actually been made.
One more thing. Do not assume that because the money went out through a bank with Form 15CA and 15CB, GST has been handled. Those are income tax formalities and have nothing to do with your GST liability.
Can You Claim ITC on RCM Payments? (Yes – Here’s How)
Yes, in most cases. Handled properly, RCM is not an extra cost. It is a timing issue.
The sequence matters, and it only works in this order:
● Work out the liability and pay it in cash through the electronic cash ledger.
● Report the liability in your GSTR-3B for that period.
● Claim the credit in the same return, in the input tax credit table.
Once that credit lands in your ledger, how you actually apply it against your output liability follows the current GST ITC set-off rules – the IGST-first sequencing catches out even businesses that get the RCM payment itself right.
The usual Section 16 conditions still apply. The expense must be for business, the credit must not be blocked under Section 17(5), and you must hold the document – the supplier’s invoice, or your self-invoice where the supplier is unregistered. For self-invoiced supplies, the credit time limit runs from the financial year in which you issued the self-invoice, so raising it late can quietly cost you the credit.
Composition dealers are the exception. They must pay RCM at normal rates, and they get no credit for it.
RCM Compliance in GSTR-3B: Reporting It Correctly
Most RCM notices we see are not about non-payment. They are about the amount sitting in the wrong box.
●Table 3.1(d): shows the value of inward supplies liable to reverse charge and the tax payable on them. This tax is paid in cash.
●Table 4(A)(2): claim credit on import of services.
●Table 4(A)(3): claim credit on all other inward supplies liable to reverse charge.
● GSTR-1: Do not report RCM inward supplies here. Table 4B of GSTR-1 is for a supplier reporting outward supplies on which the buyer pays tax. As a buyer, you have nothing to file there.
The portal also carries an RCM Liability / ITC Statement, which compares the liability declared in 3.1(d) with the RCM credit claimed. If you have been claiming credit without showing the liability, it shows up here. Reconcile it before filing, not after a notice arrives.
Penalty for Missing RCM Liability on Audit
When an auditor picks this up, the cost has three parts.
First, interest under Section 50 at 18% a year, from the date the tax fell due until it is paid. RCM liabilities often sit undetected for two or three years, so the interest alone can exceed the tax.
Second, tax and penalty through a demand. For periods from FY 2024-25 onwards, demands come under Section 74A: an ordinary case attracts a penalty of 10% of the tax or Rs. 10,000, whichever is higher, and fraud or wilful suppression attracts 100%. Older periods still follow Sections 73 and 74.
Third, and this is the one that hurts, the credit you may not get back. If the input tax credit for that year is time-barred by the time the liability surfaces, you pay the tax in cash and never recover it. Something that should have been cash-neutral becomes a real cost. If a scrutiny notice does land because of an RCM gap, our guide on how to respond to a GST scrutiny notice walks through the reply process and timelines.
PKC’s GST Compliance & RCM Advisory
PKC Management Consulting has worked with Indian businesses since 1988, with more than 200 professionals serving over 1,500 clients. Our GST advisory, tax litigation and internal audit teams sit under one roof, which matters here, because RCM is caught in the ledgers long before it is argued in a reply.
The work is practical rather than theoretical. We go through the expense ledgers and foreign remittances, flag entries that should have carried reverse charge, check the self-invoicing and GSTR-3B position, and put a monthly checklist in place so the same items get tagged when they are booked. Where a notice has already come, our litigation team handles the reply.
FAQs: GSTR-3B Reporting Mistakes Under RCM
Which table of GSTR-3B do I use for RCM liability?
Table 3.1(d), “inward supplies liable to reverse charge”. Show both the taxable value and the tax. A common error is entering the tax and leaving the value blank, which creates a mismatch the system picks up.
Where do I claim the input tax credit on RCM in GSTR-3B?
Table 4(A)(2) for import of services, and Table 4(A)(3) for other inward supplies liable to reverse charge. Putting RCM credit into Table 4(A)(5), the “all other ITC” row, is a frequent slip, and it will not reconcile with your 3.1(d) figure.
Should RCM purchases be shown in GSTR-1 as well?
No. GSTR-1 is a return of outward supplies. Table 4B there is for a supplier reporting sales on which the buyer pays reverse charge. As the buyer, your RCM goes only into GSTR-3B.
Can I set off my RCM liability against my ITC balance?
No, and the portal will not allow it. The liability in Table 3.1(d) must be paid in cash through the electronic cash ledger. You claim the credit afterwards in the same return, which is what makes it cash-neutral over the month.
What does a negative balance in the RCM Liability / ITC Statement mean?
Usually that you have claimed more RCM credit than the liability declared. Sometimes it is a genuine excess claim, sometimes credit taken in one month against liability shown in another. Either way, trace it back to the ledger before the next filing.
I missed RCM for an earlier month. How do I fix it in GSTR-3B?
You cannot revise a filed GSTR-3B. Declare the liability in Table 3.1(d) of the current return, pay it in cash with interest under Section 50, and claim the credit in the same return if it is still within time and otherwise eligible. For an older financial year, check the credit position first – that is where the real loss happens.
