Reverse Charge Mechanism under GST, what changed since 2024

Two lists, not one

Reverse charge under GST runs on two separate switches, and the working paper goes wrong when they get treated as one. Section 9(3) of the CGST Act (Section 5(3), IGST Act) taxes specifically notified categories of supply, regardless of the supplier's registration status. Section 9(4) (Section 5(4), IGST Act) is narrower: it applies only where a registered person receives a notified supply from an unregistered person, and only for the specific classes the Government notifies. Section 9(4) is not, and never returned to being, a blanket rule taxing every unregistered purchase; that version was suspended within months of GST's launch and never revived. What exists today under 9(4) is a short, specific list.

The notified lists, as they stand

Services [Notification No. 13/2017-Central Tax (Rate), as amended] include, among others: goods transport agency (GTA) services where the GTA has not opted for forward charge; legal services from an advocate or firm of advocates; services of an arbitral tribunal; sponsorship services; specified services of Government or a local authority; services of a director to the company; insurance agent and recovery agent services; renting of a motor vehicle designed to carry passengers, by a non-body-corporate supplier charging the 5% (limited-ITC) rate, to a body corporate; security services (other than by a body corporate) supplied to a registered person; and renting of immovable property, other than residential dwelling, by an unregistered person to a registered person (in force from 10 October 2024).

Goods [Notification No. 4/2017-Central Tax (Rate), as amended] cover a shorter list: cashew nuts (not shelled/peeled), bidi wrapper leaves (tendu), tobacco leaves, raw cotton, silk yarn, supply by any Government to a business entity, used vehicles/seized goods/old and used goods/waste and scrap by Government to a registered person, priority sector lending certificates, and, since 10 October 2024, metal scrap falling under Chapters 72 to 81 of the Customs Tariff Act, supplied by an unregistered person to a registered person [Notification No. 06/2024-Central Tax (Rate) dated 08.10.2024].

The metal scrap entry did double duty: alongside the 9(3) reverse charge for unregistered-to-registered supply, a parallel 2% TDS was introduced under Section 51 for registered-to-registered metal scrap supply above ₹2.5 lakh under a contract [Notification No. 25/2024-Central Tax dated 09.10.2024, amending Notification No. 50/2018-Central Tax]. The two are not the same mechanism and do not overlap on the same transaction: RCM applies when the supplier is unregistered, TDS when both parties are registered.

Two entries were narrowed in January 2025

Following the 55th GST Council, Notification No. 07/2025-Central Tax (Rate) dated 16.01.2025 narrowed two entries in the services notification:

• Sponsorship services: the RCM entry now excludes a body corporate supplier. A body corporate sponsor charges GST under forward charge; the reverse charge survives only for sponsorship by a person other than a body corporate.
• Commercial renting to a composition taxpayer: a person who has opted for the composition levy was excluded from the class of "registered person" liable under the commercial-rent RCM entry inserted in October 2024. Renting of immovable property to a composition taxpayer by an unregistered landlord therefore falls outside this particular RCM entry.

Both changes narrow, rather than widen, RCM's reach; check the supplier's status (body corporate or not) and the recipient's registration type (composition or not) before assuming an entry applies as originally drafted.

Self-invoicing now has a fixed clock

Where the supplier is unregistered, there is no supplier invoice, so the recipient must self-invoice under Section 31(3)(f). Section 122 of the Finance (No. 2) Act, 2024 empowered the Government to prescribe a time limit for this, and Rule 47A, in force from 1 November 2024, fixed it: the self-invoice must be issued within 30 days of receipt of the supply.

Section 117 of the same Act, effective the same date, correspondingly amended Section 13(3) for services from an unregistered supplier: the time of supply is now the earlier of the date of payment or the date the self-invoice is issued — not "60 days from the supplier's invoice," which has no meaning where there is no supplier invoice. For RCM services received from a registered supplier (GTA, an advocate's firm, and so on), the original 13(3) rule continues: earliest of the date of payment or 60 days from the supplier's own invoice. Goods under 9(3)/9(4) continue to follow Section 12(3): earliest of receipt of goods, date of payment, or 30 days from the supplier's invoice.

ITC: paid in cash, and the limitation year runs from the self-invoice

RCM tax cannot be discharged from the electronic credit ledger; it must be paid in cash. The corresponding ITC becomes available in the return for the period in which the cash payment is made, not merely on accrual. The eligible document is the supplier's tax invoice where the supplier is registered, or the recipient's own self-invoice under Rule 36(1)(b) where the supplier is unregistered.

A frequent scrutiny question: where a self-invoice is raised late, sometimes years after the supply (a common fact pattern in import of services between related parties, where no consideration is initially recognised as taxable), which financial year governs the Section 16(4) time limit? Circular No. 211/5/2024-GST dated 26.06.2024 settled this in the taxpayer's favour: the relevant year for Section 16(4) is the year the self-invoice is issued, not the year the supply was received, because Section 16(4) is expressly linked to the invoice and the recipient cannot hold ITC without one. This does not excuse the underlying delay: interest under Section 50 still runs on the tax from the original time of supply to the date it is actually paid. A companion circular, No. 210/4/2024-GST, separately extended the distinct-persons valuation rule of Circular No. 199/11/2023-GST to related-party imports of services: where full ITC is available, the value declared in the self-invoice is deemed the open market value, and if no self-invoice is issued at all, the value is deemed nil (though this does not excuse the RCM liability once a supply is established).

Composition taxpayers are not exempt from RCM

A person paying tax under the composition scheme (Section 10) still pays RCM tax at the normal notified rate, not the composition rate, and in cash. Because composition taxpayers cannot avail ITC at all, RCM tax paid by them is a pure cost, not a pass-through credit. This is why the January 2025 amendment excluding composition taxpayers from the commercial-rent RCM entry (above) matters in practice, and why it does not extend to any other RCM entry.

GTA: an annual, self-renewing election

A GTA can elect to pay forward charge instead of RCM. Since Notification No. 06/2023-Central Tax (Rate) dated 26.07.2023, this election is filed as Annexure V (opting for forward charge) between 1 January and 31 March for the following financial year, and, once made, it carries forward automatically in later years unless the GTA files Annexure VI to revert to reverse charge. A newly registered GTA files Annexure V within 45 days of applying for registration, or one month of obtaining it. Whether a given freight invoice is reverse charge therefore depends on which annexure, if any, is on file for that GTA and that year, not on an assumption either way.

Reporting

RCM liability is reported in GSTR-3B Table 3.1(d) and paid in cash through the electronic cash ledger; the corresponding ITC is claimed in Table 4(A). Because the supplier is either unregistered or, for GTA/legal services, has typically not charged tax on the invoice, the RCM entry will not appear as an inward supply matched in GSTR-2B in the ordinary way; the self-invoice (or the supplier's invoice for registered-supplier RCM) is the taxpayer's own record supporting both the liability and the credit, and is the first document a scrutiny of Table 3.1(d) should call for.