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Taxation · Charge of GST

Reverse Charge Mechanism (RCM) in GST: Sections 9(3) and 9(4)

Updated 5 October 2026 · Fact-checked

Reverse charge mechanism (RCM) makes the recipient, not the supplier, pay GST. It applies to goods and services notified under section 9(3), to notified supplies from unregistered persons under section 9(4), and to import of services. To solve questions, identify the supply, check the notified entry, compute tax on the value, pay it in cash, then claim ITC.

Understand Reverse Charge Mechanism (RCM)

Normally the supplier collects GST from the customer and deposits it with the Government. This is the forward charge. Under reverse charge, the roles flip. The recipient calculates the tax and deposits it. The supplier does not collect tax on such a supply. A registered supplier does not charge tax in its invoice. It states that tax is payable on reverse charge. An unregistered supplier issues no tax invoice. The recipient liable under RCM issues its own invoice and a payment voucher, as explained below. Section 2(98) defines reverse charge as the liability to pay tax by the recipient instead of the supplier.

Why does the law do this? Some suppliers are hard to track. They may be small, unregistered or located abroad. Collecting tax from a registered recipient is easier and protects revenue. It also brings unorganised sectors into the tax net.

There are three main routes. Section 9(3) covers categories of goods and services notified by the Government on the Council's recommendation. Notification 13/2017-Central Tax (Rate) lists the services, and Notification 4/2017-Central Tax (Rate) lists the goods. Section 9(4) covers notified categories of supply of goods or services or both received by a registered person from an unregistered supplier. The notified categories are not limited to one type of recipient. One example is a promoter receiving notified supplies such as development rights, FSI (including additional FSI) or construction services from a landowner, subject to the conditions of the notification. Supply of land itself is not an RCM item. Apply an entry only when the question gives the facts and conditions. Import of services from outside India is taxed on the recipient under IGST section 5(3) read with Notification 10/2017-Integrated Tax (Rate). IGST section 5(4) is a different provision. It concerns notified supplies from unregistered suppliers to notified registered persons, so it is not the route for import of services.

A few related points matter. Section 24 (clause iii) makes registration compulsory for a person liable to pay tax under reverse charge, irrespective of the turnover threshold. If a question gives an exemption notification, apply it exactly as stated. Do not assume one.

On documents, the recipient who is liable to pay tax under RCM issues an invoice under section 31(3)(f) for the goods or services received from the supplier. Under section 31(3)(g), the recipient also issues a payment voucher at the time of making payment to the supplier. Check the current position for supplies from unregistered suppliers in Notification 8/2017-Central Tax (as amended), and apply any condition the question gives.

RCM tax cannot be paid from the electronic credit ledger because it is not 'output tax' as defined in section 2(82). You must pay it in cash. Once the tax is paid in cash, you can claim input tax credit, subject to sections 16 and 17. Credits blocked by section 17(5) stay blocked even if you paid the tax under RCM.

Section 9(5) is a distinct provision from sections 9(3) and 9(4). Under it, the e-commerce operator is liable to pay tax on notified services supplied through its platform, such as passenger transport, accommodation and housekeeping services, subject to the conditions of the notification. The liability falls on the operator and not on the supplier. Read the question carefully to tell section 9(5) apart from sections 9(3) and 9(4).

Key rules to remember

Meaning of reverse charge
Reverse charge = recipient pays tax instead of supplier (section 2(98))
Applies under CGST section 9(3) and 9(4), and under the matching IGST provisions, including IGST section 5(3) for import of services.
RCM liability
Tax payable by recipient = Value of supply × Applicable GST rate
Value is the transaction value under section 15. For intra-State supply, split into CGST and SGST/UTGST equally. For inter-State supply or import of services, charge IGST.
Section 9(3) rule
Notified goods/services → recipient liable, whether or not the supplier is registered
Always check the conditions in the notified entry. Some entries apply only to specified suppliers and recipients.
Section 9(4) rule
Notified categories of supply received by a registered person from an unregistered supplier → recipient liable
Applies only to the categories of goods and services the Government has notified. It does not cover every purchase from an unregistered supplier.
Payment of RCM tax
RCM tax is paid in cash; ITC is claimed afterwards, subject to sections 16 and 17
RCM tax is not output tax (section 2(82)), so the credit ledger cannot be used to pay it. Credits blocked under section 17(5) stay blocked.
Registration
Person liable to pay tax under RCM must register (section 24(iii)), irrespective of the turnover threshold
The turnover threshold does not apply to such a person. If a question gives an exemption notification, apply it as stated. Do not assume one.
Documents under RCM
Recipient liable under RCM: issues invoice for supplies received (section 31(3)(f)) and payment voucher at the time of payment to the supplier (section 31(3)(g))
A registered supplier does not charge tax and states that tax is payable on reverse charge. An unregistered supplier issues no tax invoice. Check Notification 8/2017-Central Tax (as amended) for the current position on supplies from unregistered suppliers.

How to solve Reverse Charge Mechanism (RCM) questions

Use this order for any RCM question. It stops you from missing the notified entry or the conditions.

  1. 1Identify the supply. Write down what is supplied (goods or services), who supplies it, who receives it, and whether the supplier is registered.
  2. 2Check the route. Is it an import of service, a notified entry under section 9(3), or a notified category under section 9(4)? If none fits, it is forward charge.
  3. 3Match the entry and its conditions. Check the exact supplier and recipient types. For example, legal services by an advocate apply when the recipient is a business entity.
  4. 4Decide the type of tax. Intra-State supply gives CGST plus SGST/UTGST. Inter-State supply or import of services gives IGST. Use the location of the supplier and the place of supply to decide. The supplier's registration status does not decide this.
  5. 5Compute tax on the value given, at the stated rate. Do not add tax already in the invoice unless the question says the value includes tax.
  6. 6State the payment and compliance points: pay in cash, the recipient issues an invoice under section 31(3)(f) and a payment voucher at the time of payment under section 31(3)(g), and the recipient must be registered under section 24(iii) irrespective of the turnover threshold. Apply an exemption notification only if the question gives it.
  7. 7State the ITC position. ITC is available only after the RCM tax is paid in cash, and only subject to sections 16 and 17, including the blocked credits in section 17(5). Recipients engaged in taxable supplies can claim credit. ITC is not available for inputs used exclusively for exempt supplies, or to a composition dealer. A composition dealer must still pay the RCM tax itself. If inputs are used for both taxable and exempt supplies, ITC is apportioned under section 17(2).

Quickest way: Three-question RCM check

When to use it: Use this for MCQs and for the first line of a written answer.

  1. Ask: is the supplier outside India and the recipient in India? If yes, it is import of service, so the recipient pays IGST (IGST section 5(3) read with Notification 10/2017-Integrated Tax (Rate)).
  2. Ask: is the supply on the notified list, for example advocate, director, sponsorship, insurance agent, recovery agent, GTA, or the notified goods? If yes and conditions are met, the recipient pays.
  3. Ask: is the supplier unregistered and is the supply a notified category received by a registered person under section 9(4)? If yes, the recipient pays. Otherwise the supplier pays under forward charge.
  4. For MCQs, cut options that say the supplier pays, or that use the credit ledger to pay RCM tax. Both are wrong.
  5. For written answers, use this format: provision, facts, conclusion, calculation, ITC. Give the section or notification, apply it to the facts, state who pays and how much, then say whether credit is allowed.

Common mistakes in Reverse Charge Mechanism (RCM)

  • Treating every purchase from an unregistered supplier as RCM.

    Students assume any purchase from an unregistered supplier is under reverse charge.

    Fix: Section 9(4) applies only to notified categories of supply received by a registered person from an unregistered supplier. A promoter receiving development rights, FSI (including additional FSI) or construction services from a landowner is one example. Land itself is not an RCM item. Apply it only when the question gives such facts and the conditions of the notification are met.

  • Paying RCM tax from the electronic credit ledger.

    Students assume ITC can pay any GST liability.

    Fix: RCM tax is not output tax under section 2(82). Pay it in cash, then claim the credit in the ledger.

  • Charging tax in the supplier's invoice for a supply under RCM.

    Students mix up the forward and reverse charge roles.

    Fix: A registered supplier does not charge tax in its invoice and states that tax is payable on reverse charge. An unregistered supplier issues no tax invoice. The recipient computes the tax, issues an invoice under section 31(3)(f) and a payment voucher at the time of payment under section 31(3)(g), and pays the tax.

  • Ignoring the conditions in the notified entry.

    Students memorise the service name but not who the supplier and recipient must be.

    Fix: Check both parties. For example, advocate services under RCM apply to a business entity as recipient. A private individual receiving legal advice does not pay under RCM.

  • Using CGST and SGST for an import of services.

    Students forget that import of services is an inter-State supply.

    Fix: Import of services attracts IGST only, paid by the recipient.

  • Denying ITC on RCM tax automatically, or allowing it without conditions.

    Students think paying tax on someone else's behalf means no credit. Others assume credit is always available once RCM is paid.

    Fix: ITC is available after the tax is paid in cash, if the goods or services are used for taxable business supplies and sections 16 and 17 are met. Credits blocked under section 17(5) stay blocked. ITC is not available for inputs used exclusively for exempt supplies, or to a composition dealer, who must still pay the RCM tax. If inputs are used for both taxable and exempt supplies, ITC is apportioned under section 17(2).

Worked examples

Example 1

Alpha Traders Pvt. Ltd., a registered company in Maharashtra making taxable supplies, paid an advocate (an individual, unregistered, located in Maharashtra) ₹2,00,000 for legal services. The GST rate on the services is 18%. Compute the GST payable under RCM and state whether credit is available.

Show the solution
  1. Legal services supplied by an advocate to a business entity are notified for reverse charge under section 9(3). Alpha is the recipient and is liable to pay the tax.
  2. Alpha is a registered person, so the place of supply is the location of the recipient under section 12(2), which is Maharashtra. The advocate's location is also Maharashtra, as given. Location of supplier and place of supply are in the same State, so the supply is intra-State: CGST plus SGST.
  3. Tax = ₹2,00,000 × 18% = ₹36,000.
  4. CGST = ₹2,00,000 × 9% = ₹18,000. SGST = ₹2,00,000 × 9% = ₹18,000.
  5. The advocate is unregistered and issues no tax invoice. Alpha, as the recipient liable under RCM, issues an invoice under section 31(3)(f) and a payment voucher at the time of making payment under section 31(3)(g).
  6. Alpha must pay the tax in cash, because RCM tax is not output tax and cannot be paid from the credit ledger.
  7. Alpha uses the services for taxable business supplies. After paying the tax in cash, it may claim ITC of ₹36,000, subject to sections 16 and 17 (including the blocked credits in section 17(5)).

Answer: RCM liability is ₹36,000 (CGST ₹18,000 + SGST ₹18,000), paid in cash by Alpha, which issues an invoice and a payment voucher. ITC of ₹36,000 can be claimed after payment, subject to conditions.

Example 2

Beta Ltd., a registered company in Delhi making taxable supplies, receives consulting services from a foreign firm for ₹10,00,000. The service is received in India and the rate is 18%. Who pays GST, how much, and what is the ITC position?

Show the solution
  1. The supplier is located outside India and the recipient is in India. This is an import of services.
  2. Import of services is an inter-State supply. The recipient is liable to pay IGST under reverse charge (IGST section 5(3) read with Notification 10/2017-Integrated Tax (Rate)).
  3. IGST = ₹10,00,000 × 18% = ₹1,80,000.
  4. Beta must pay IGST of ₹1,80,000 in cash.
  5. The service is used for taxable supplies, so after paying the tax in cash, Beta may claim ITC of ₹1,80,000, subject to sections 16 and 17 (including the blocked credits in section 17(5)).

Answer: Beta Ltd. pays IGST of ₹1,80,000 in cash under reverse charge. It can claim ITC of ₹1,80,000 after payment, subject to conditions.

Exam tips

  • Always name the provision: section 9(3), section 9(4), or IGST import of services. Naming it earns step marks.
  • In MCQs, watch for options that say the supplier pays or that use ITC to pay RCM. Those are the usual wrong choices.
  • Read the question for the supplier's registration status and the recipient's type. Many RCM entries depend on them.
  • If the question gives a rate, use it. Do not rely on a remembered rate, because rates change.
  • End written answers with an ITC remark. Examiners often keep a mark for it.

Practice questions from Charge of GST

Reverse Charge Mechanism (RCM) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Reverse Charge Mechanism (RCM): frequently asked questions

What is the difference between section 9(3) and section 9(4) of the CGST Act?

Section 9(3) covers notified categories of goods and services, where the recipient pays tax regardless of the supplier's registration, subject to the entry's conditions. Section 9(4) covers notified categories of supply of goods or services or both received by a registered person from an unregistered supplier. The first depends on the category of supply. The second depends on both the notified category and the supplier being unregistered.

Can I claim ITC on tax paid under RCM?

Yes, after you pay the tax in cash, if the goods or services are used for taxable business supplies and the conditions of sections 16 and 17 are met. Credits blocked under section 17(5) stay blocked. You cannot claim credit if the inputs are used for exempt supplies, or if you are under composition.

Is import of services under RCM?

Yes. When the supplier is outside India and the recipient is in India, the recipient pays IGST under reverse charge. This arises under IGST section 5(3) read with Notification 10/2017-Integrated Tax (Rate). Check who the recipient is in the question.

Does a person paying RCM have to register?

Yes. Section 24(iii) makes registration compulsory for persons who are liable to pay tax under reverse charge, irrespective of the turnover threshold. If a question gives an exemption notification, apply it exactly as stated. Do not assume an exemption.