ITC on Reverse Charge: Timing, Documents and the Cash Rule

ITC on Reverse Charge explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Reverse charge is often described as revenue-neutral — you pay the tax and take the credit. For most businesses that is true in aggregate, but not in the same month, not from the same ledger, and not on the same document.

Three features of RCM credit differ from ordinary credit, and each catches people out.

The liability must be paid in cash. Section 49(4) permits the credit ledger to be used only for output tax, and RCM liability is not the recipient's output tax. The credit follows payment, not the invoice — Rule 36(1)(b) makes the self-invoice route "subject to the payment of tax". The document is your own self-invoice under s.31(3)(f), so the s.16(4) clock runs from its financial year.

The cash rule

Section 49(4): the amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or the IGST Act.

Section 2(82) defines output tax as tax chargeable on taxable supply of goods or services made by him or by his agent — and expressly excludes tax payable by him on reverse charge basis.

So RCM liability is not output tax and cannot be discharged from the credit ledger. It must be paid through the electronic cash ledger.

The practical consequence: RCM is a cash outflow in the month of the time of supply, with the credit arriving in the same or a later month depending on the sequence. For a business with a large standing credit balance and heavy RCM exposure, that is a permanent working capital cost.

When the credit arises

Rule 36(1)(b) permits credit on an invoice issued in accordance with s.31(3)(f), "subject to the payment of tax".

So the sequence is:

1. Time of supply arises under s.12(3) or s.13(3) — the earliest of payment to the supplier, thirty days (goods) or sixty days (services) from the supplier's invoice, or the recipient's self-invoice date. The 60-day rule →
2. Liability is declared in GSTR-3B Table 3.1(d) for that period and paid in cash.
3. Credit is availed in Table 4(A)(2) or 4(A)(3) of the same return, subject to s.16 and s.17.

Where the tax is paid in the correct period, liability and credit fall in the same GSTR-3B and the net cash effect is limited to the cash-ledger deposit and the credit arriving separately.

Where the tax is paid late, the credit is available in the period of payment, and interest under s.50(1) runs on the liability from the original due date. The credit does not neutralise the interest.

The section 16(4) clock

Ordinary credit is keyed to the supplier's invoice. RCM credit is keyed to the self-invoice, because that is the document prescribed by Rule 36(1)(b).

So a self-invoice issued in FY 2026-27 for a supply received in FY 2025-26 carries credit claimable up to 30 November 2027.

That is favourable — but it interacts with Rule 47A, which since 01.11.2024 requires the self-invoice to be issued within thirty days of receiving the supply from an unregistered supplier. Deliberately delaying the self-invoice to extend the credit window is a breach of Rule 47A, and the time of supply under s.13(3)(c) moves with it only up to a point — the first proviso pulls it back to the date of entry in the recipient's books.

The documents

Self-invoice under s.31(3)(f) — required where the supply is from an unregistered supplier. Where the supplier is registered and the supply is under s.9(3), the supplier issues a tax invoice showing that tax is payable on reverse charge, and that invoice is the document.

Payment voucher under s.31(3)(g) — required at the time of making payment to the supplier. It is not a credit document; it evidences the payment.

Rule 46 particulars apply to the self-invoice, with Rule 46(f) requiring the name, address and, where applicable, State and code of the unregistered recipient — here read as the unregistered supplier.

A consolidated self-invoice at month end was permitted for supplies from unregistered persons under the older drafting; Rule 47A's thirty-day requirement now governs the timing, and per-supply invoices are the safer practice.

Where RCM credit is not available

RCM does not override s.17(5). Tax paid under reverse charge on a blocked supply — a rent-a-cab service that fails the s.17(5)(b) conditions, for instance — is paid and not creditable. The liability is real; the credit is not.

Nor does RCM override s.17(2). A business with exempt output apportions RCM credit through Rule 42 like any other.

And a composition dealer pays RCM in full with no credit at all, since s.10(4) denies credit entirely.

Key takeaways

• RCM liability must be paid in cash — s.49(4) read with s.2(82).
• Credit follows payment of the tax, under Rule 36(1)(b).
• Liability and credit are both reported in GSTR-3B, in Tables 3.1(d) and 4(A)(2)/(3).
• The s.16(4) clock runs from the self-invoice's financial year.
• Rule 47A: self-invoice within thirty days of receiving the supply from an unregistered supplier.
• s.17(5) and s.17(2) still apply — RCM tax on a blocked supply is not creditable.

Read next

• The 60-Day Rule: Time of Supply Under Reverse Charge
• Self-Invoice for Reverse Charge Purchases
• Rule 36: Which Documents Support a Credit Claim
• Reverse Charge Mechanism Under GST: Complete Guide

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act and Rules as amended to 31 March 2026 (ICAI Bare Law, 12th edition).