Reverse Charge Mechanism GST List: Common Cases for Small Businesses
Under reverse charge, you as the buyer pay the GST instead of the seller. For a small business the common cases are road freight from a transporter, legal fees from an advocate, rent paid to an unregistered landlord for a shop or office, security guards, and sponsorship. The goods list covers metal scrap and a few farm products.
- The services list is Notification 13/2017-Central Tax (Rate). The goods list is Notification 4/2017-Central Tax (Rate). Both have been amended many times.
- Since 10 October 2024, a registered tenant pays GST on rent for commercial property taken from an unregistered landlord. From 16 January 2025, composition taxpayers are left out of this.
- When the supplier is unregistered, you issue the invoice yourself within 30 days of receiving the supply.
- Tax paid under reverse charge can usually be claimed back as input tax credit, if the purchase is for taxable business.
In this guide
What is reverse charge, in plain words?
Normally the seller charges GST on the bill, collects it from you and pays it to the Government. That is forward charge. For some supplies, the Government asks the buyer to pay instead. This is reverse charge, often called RCM.
Why does it exist? Many of these suppliers are small or unregistered: farmers, individual advocates, local landlords, security agencies run by individuals. Collecting tax from thousands of them is hard. Collecting it from the registered business that pays them is easy.
Section 9(3) of the CGST Act lets the Government notify these supplies. Section 9(4) covers purchases from unregistered suppliers, but today it is used only for certain real estate promoters, so it does not touch most small businesses.
Common services under reverse charge
| Service | Supplier | Who pays under reverse charge |
|---|---|---|
| Transport of goods by road through a goods transport agency (GTA) | A GTA that has not opted to charge tax itself | Registered persons, factories, societies, co-operatives, body corporates, partnership firms and casual taxable persons |
| Legal services | An individual advocate, senior advocate or firm of advocates | Any business entity |
| Renting of property other than a residential dwelling | An unregistered person | Any registered person, other than a composition taxpayer |
| Renting of a residential dwelling | Any person | A registered person |
| Security services, by supply of security personnel | Any person other than a body corporate | A registered person, other than a composition taxpayer |
| Sponsorship | Any person other than a body corporate (from 16 January 2025) | A body corporate or partnership firm |
| Services of a director | A director | The company or body corporate |
| Most services from the Government or a local authority | Central or State Government, Union territory or local authority | A business entity. Renting, postal and some transport services are excluded |
A note on GTA. If the transporter opts to charge GST under forward charge, the tax is on his bill and you do not pay it again. From 22 September 2025, the GST Council's rate table shows GTA at 5 percent without credit under reverse charge, or 18 percent with credit if the GTA charges tax itself.
Services you buy from abroad, such as foreign software or advertising billed from outside India, are also generally taxed under reverse charge as an import of services. That falls under the IGST law, so check it separately.
Goods under reverse charge
| Goods | Supplier | Buyer who pays |
|---|---|---|
| Cashew nuts not shelled or peeled, bidi wrapper leaves, tobacco leaves, raw cotton | An agriculturist | Any registered person |
| Silk yarn | A person who makes silk yarn from raw silk or cocoons | Any registered person |
| Certain essential oils, such as peppermint and mint oils | An unregistered person | Any registered person |
| Metal scrap of Chapters 72 to 81 (from 10 October 2024) | An unregistered person | Any registered person |
| Used vehicles, seized goods, old goods, waste and scrap | Government or a local authority | Any registered person |
| Lottery | A State Government, Union territory or local authority | A lottery distributor or selling agent |
One recent change: the GST Council's 57th meeting on 8 October 2026 recommended adding waste and scrap of plastics, tyres and electronics, and used cooking oil, to this list when sold by an unregistered person. Published reports say this was notified from 1 November 2026. We could not open the official notification, so confirm it on the CBIC site if you buy these goods.
How to pay tax under reverse charge
- Spot the supply. Check every bill for rent, freight, legal fees, security and sponsorship against the lists above.
- Raise your own invoice if the supplier is unregistered. Rule 47A gives you 30 days from receiving the supply to issue it. Also issue a payment voucher when you pay.
- Report the tax. Show it in Table 3.1(d) of GSTR-3B for the month.
- Pay in cash. Reverse charge tax is paid from the electronic cash ledger, not from your existing credit.
- Claim the credit. If the purchase is for taxable business and the credit is not blocked, claim it in Table 4(A)(3) of the same return.
When a registered supplier issues a bill marked as reverse charge, it appears in your GSTR-2B. It does not pass through IMS. See GSTR-2A vs GSTR-2B for how that statement works.
A worked example
Sameer sells home decor online from a small godown he rents for Rs 30,000 a month. The landlord is not registered under GST. Sameer is a regular taxpayer, not under composition.
Each month Sameer issues a self-invoice for Rs 30,000. Renting of commercial property is taxed at 18 percent, so the tax is Rs 5,400: Rs 2,700 CGST and Rs 2,700 SGST. He pays Rs 5,400 in cash with his GSTR-3B, then claims Rs 5,400 as credit in the same return. Over a year, that is Rs 64,800 paid in cash and Rs 64,800 back as credit. His real cost is close to nil, but he must find the cash first.
If he ignores it, the Rs 64,800 becomes a demand later with interest, and the credit for those months may be time-barred by then. That is the real cost of missing reverse charge.
The mistake small businesses usually make
The usual mistake is thinking reverse charge is the landlord's or transporter's problem. It is yours. The supplier often does not even know.
The second mistake is using credit to pay it. Reverse charge tax has to be paid in cash. Composition taxpayers have their own trap: they pay reverse charge where it applies but cannot claim the credit, though they are now outside the commercial rent and security service entries. Our guide on the composition scheme for online sellers explains the limits. Rules for claiming the credit are in input tax credit conditions.
Sources
- Notification 09/2024-Central Tax (Rate): renting of property other than residential dwelling under reverse charge from 10 October 2024 (checked 13 Nov 2026)
- Notification 07/2025-Central Tax (Rate): composition taxpayers excluded, sponsorship change (checked 13 Nov 2026)
- Notification 06/2024-Central Tax (Rate): metal scrap under reverse charge (checked 13 Nov 2026)
- ICAI consolidated text of Notification 13/2017-Central Tax (Rate) (checked 13 Nov 2026)
- ICAI consolidated text of Notification 4/2017-Central Tax (Rate) (checked 13 Nov 2026)
- GST Council: recommendations of the 56th meeting, GTA rates from 22 September 2025 (checked 13 Nov 2026)
- GST Council: recommendations of the 57th meeting, 8 October 2026 (checked 13 Nov 2026)
- CBIC: rule 47A, self-invoice within 30 days (checked 13 Nov 2026)
How AprilTax can help
If you are not sure which of your bills fall under reverse charge, a Tax Expert at AprilTax files your GSTR-1 and GSTR-3B for a fixed fee of Rs 499 a month, or Rs 1,399 a quarter for quarterly filers, fully online. See GST return filing by a Tax Expert.
Frequently asked questions
What is reverse charge under GST?
Do I pay GST on rent for my shop under reverse charge?
Is freight paid to a transporter under reverse charge?
Can I use input tax credit to pay reverse charge tax?
Who issues the invoice under reverse charge?
Where is reverse charge shown in GSTR-3B?
Does a composition dealer pay reverse charge?
Is metal scrap bought from an unregistered dealer under reverse charge?
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