Key takeaways
What this article covers, in order:
- What is reverse charge, in plain words?
- Which purchases usually fall under RCM?
- How does the paperwork work?
- When is RCM tax due?
- Filling GSTR-3B, step by step
- What's the RCM ledger and why should I care?
You rent a small godown from a retired schoolteacher who isn't registered for GST. Since Oct 2024, that rent is under reverse charge, which means you pay the GST on it, not her. In GSTR-3B, reverse charge purchases go in Table 3.1(d), the tax is paid in cash (not from your ITC balance), and you then claim the same tax back as input tax credit in Table 4(A)(3), or 4(A)(2) for imported services, as long as the purchase is otherwise eligible.
So for most businesses RCM is cash-neutral over a month or two. It's the timing, the paperwork and the forgetting-to-claim part that cause trouble.
What is reverse charge, in plain words?
Normally the seller collects GST and pays it. Under reverse charge, the buyer pays it directly to the government. The law does this for two reasons: for certain notified goods and services where the government prefers to collect from the buyer (Section 9(3)), and for a small notified category of purchases from unregistered suppliers (Section 9(4), which today is narrow and mostly about real estate promoters).
Which purchases usually fall under RCM?
The full list is in the rate notifications, and it does change, so check the current notifications on the CBIC site for your exact case. For small businesses, the ones that come up most often are:
- Goods transport agency (GTA) services, where the GTA hasn't opted to charge GST itself
- Legal services from an advocate or law firm to a business entity
- Services of a company director to the company
- Sponsorship services to a business
- Security services from a non-corporate supplier to a registered business (with some exclusions)
- Renting of commercial property (anything other than a residential dwelling) by an unregistered person to a registered person, from 10 Oct 2024
- Renting of a residential dwelling to a registered person (with carve-outs)
- Imports of services
- Some goods, like raw cashew and tobacco leaves, and metal scrap bought from unregistered sellers (from Oct 2024)
Note that a composition dealer was taken out of the commercial rent RCM entry from Jan 2025. If you're on composition, check the current position with your CA.
How does the paperwork work?
It depends on whether your supplier is registered.
Registered supplier (a GTA, a law firm). They issue a normal tax invoice marked "tax payable on reverse charge: Yes". They report it in their GSTR-1 under the reverse charge B2B section, and it shows in your GSTR-2B as an RCM invoice. You pay the tax and claim it.
Unregistered supplier (the schoolteacher landlord, a scrap dealer without GST). There's no invoice from them that carries GST. So you raise a self-invoice under Section 31(3)(f). From 1 Nov 2024, Rule 47A says you have to issue it within 30 days of receiving the goods or services. You also issue a payment voucher when you pay the supplier. These self-invoices don't flow through GSTR-2B or IMS, so you track them yourself.
When is RCM tax due?
Time of supply rules for RCM are a bit different from normal sales.
| Goods under RCM | Services under RCM | |
|---|---|---|
| Time of supply is the earliest of | Date of receipt of goods, date of payment, or 31 days after the supplier's invoice date | Date of payment, or 61 days after the supplier's invoice date |
In plain terms: for services, if you haven't paid within 60 days of the invoice, the tax becomes due anyway. If the supplier is unregistered and there's no invoice, the date of your self-invoice and the date of payment become the anchors. When it gets murky (advances, part payments, imports), ask your CA.
Filling GSTR-3B, step by step
Table 3.1(d), inward supplies liable to reverse charge. Enter the total taxable value and the IGST, CGST, SGST and cess on all your RCM purchases for the month, from both registered and unregistered suppliers.
Pay in cash. RCM liability can't be set off against your ITC balance. It has to come from the electronic cash ledger. People get caught here every month. They have ₹2 lakh of ITC sitting there and assume it'll cover the ₹18,000 of RCM. It won't.
Table 4(A)(3), inward supplies liable to reverse charge. Claim the ITC on those same RCM purchases, if they're eligible (business use, not blocked under Section 17(5)). Imported services go in 4(A)(2) instead.
So for one month the cash goes out in Table 3.1(d) and comes back as ITC in 4(A)(3), which you then use against your normal output tax in that same return. Net effect, close to zero. But only if you claim it.
What's the RCM ledger and why should I care?
The GST portal keeps an RCM Liability/ITC Statement. It's built from your GSTR-3B filings and compares the RCM tax you've paid in 3.1(d) with the RCM credit you've claimed in 4(A)(2) and 4(A)(3). Taxpayers had to report an opening balance for it back in 2024.
The idea is simple: you shouldn't claim more RCM credit than the RCM tax you've actually paid. Right now the portal shows a warning if your claim runs ahead. GSTN said in a Dec 2025 advisory that it intends to stop excess claims and negative balances altogether, which would block the return. Check the portal's current advisory before you file, and look at the statement every few months to make sure it isn't drifting negative.
A worked example
Ritu runs a small packaging unit near Ludhiana. Illustrative numbers for Nov 2026:
- Godown rent from an unregistered landlord: ₹40,000. RCM at 18% is ₹7,200 (₹3,600 CGST + ₹3,600 SGST). She self-invoices within 30 days.
- Freight from a GTA that hasn't opted for forward charge: ₹25,000. RCM at the applicable rate (say ₹1,250 at 5%).
- Legal fees to an advocate: ₹15,000. RCM ₹2,700.
In GSTR-3B for Nov 2026 she reports ₹80,000 taxable value with ₹11,150 tax in Table 3.1(d), pays ₹11,150 in cash, and claims ₹11,150 as ITC in 4(A)(3). The credit then reduces her regular output tax. Cash goes out on the 20th, comes back the same day as credit.
The rates above are examples; check the current rate for each service under the latest notifications.
Where RCM usually goes wrong
Paying from ITC instead of cash is the classic. Forgetting to claim the ITC afterwards is the expensive one, because you've paid twice in effect.
Then there's missing the self-invoice for unregistered suppliers altogether, especially commercial rent, which a lot of small businesses still don't realise is under RCM. And treating a GTA invoice as normal forward charge without checking whether the GTA actually opted to charge GST.
One more. Claiming RCM credit for a month without having paid the matching tax. The RCM statement will catch it.
Monthly RCM checklist
- [ ] List every expense that might fall under RCM (rent, freight, legal, director fees, security, imports)
- [ ] Check whether each supplier is registered and whether they charged GST
- [ ] Self-invoice unregistered suppliers within 30 days
- [ ] Issue payment vouchers when you pay them
- [ ] Report total RCM in Table 3.1(d)
- [ ] Pay RCM in cash
- [ ] Claim eligible RCM ITC in 4(A)(2) or 4(A)(3)
- [ ] Glance at the RCM Liability/ITC Statement for a negative balance
How HelloBooks helps
You can mark a purchase bill as reverse charge in HelloBooks, so the RCM tax is tracked separately from your normal purchases and shows up when you prepare GSTR-3B. You then file GSTR-3B directly to the GST portal from inside HelloBooks on the Free plan, for one GSTIN, with the portal's own interest and late fee shown before you submit. GSTR-2B reconciliation with ITC tracking helps you spot RCM invoices from registered suppliers. Learn more on the GSTR-3B filing page and the GSTR-2B reconciliation page.
FAQs
Can I pay reverse charge GST using my ITC balance?
No. RCM liability must be paid in cash through the electronic cash ledger.
Can I claim ITC on tax paid under reverse charge?
Yes, if the purchase is used for business and isn't a blocked credit. Claim it in Table 4(A)(3), or 4(A)(2) for imported services, after paying the tax.
Do RCM self-invoices show up in GSTR-2B or IMS?
No. Self-invoices for unregistered suppliers stay in your own books. Only RCM invoices reported by registered suppliers appear in GSTR-2B.
Is rent paid to an unregistered landlord for a shop covered by RCM?
For a registered tenant, yes, from 10 Oct 2024, for property other than a residential dwelling. Composition dealers were excluded later. Confirm your case with a CA if your arrangement is unusual.
I forgot to pay RCM for some months. What should I do?
Pay it with interest through your next GSTR-3B (or DRC-03, as your CA advises) and claim the ITC in the month you pay. The sooner, the less interest.
RCM is mostly a cash timing issue. Pay in cash, claim it back, and keep your self-invoices tidy.
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