Current law, practical impact & compliance playbook (July 2025)
1. Why this issue keeps resurfacing
When GST commenced on 1 July 2017, section 9(4) made every registered person liable to pay GST on any supply received from an unregistered person (URP). Trade and industry quickly flagged the rule as unworkable. Parliament therefore amended section 9(4) (effective 1 February 2019) to restrict its operation only where the Government notifies (a) a class of registered recipients and (b) specific goods / services.
Hence, in 2025 RCM is not a blanket rule for every purchase from an URP; it applies only in two live situations discussed below.
2. Statutory architecture at a glance
| Provision | Trigger | Who pays GST | Typical supplies |
|---|---|---|---|
| § 9(3) CGST / § 5(3) IGST | Government notifies based on nature of supply / supplier | Recipient (always) | GTA freight, advocate fees, security services, bidi leaves, cashew nuts, etc. (registration status of supplier irrelevant) |
| § 9(4) CGST / § 5(4) IGST | Government notifies class of recipients and specified supplies from URPs | The notified recipient | 1️⃣ Promoters (real-estate projects) 2️⃣ Metal scrap buyers |
Your question falls under § 9(4).
3. Evolution of the law
| Date | Change | Practical effect |
|---|---|---|
| 01-Jul-2017 | Original § 9(4) – RCM on all URP supplies | Massive compliance burden |
| 13-Oct-2017 | Temporary exemption up to ₹5,000 per day | Short-term relief |
| 01-Feb-2018 → 30-Sep-2019 | Successive deferment notifications | Rule dormant |
| 01-Feb-2019 | Amendment Act narrows § 9(4) to notified cases | Permanent change |
| 01-Apr-2019 | Notification 07/2019-CT(R) brings promoters under § 9(4) | First sector-specific revival |
| 10-Oct-2024 | Notification 06/2024-CT(R) brings metal scrap (HSN 72–81) under § 9(4) | Second live category |
4. RCM obligations in force (July 2025)
4.1 Real-estate promoters – the 80 % procurement rule
| Item | Rule | Rate | Due date for payment |
|---|---|---|---|
| Inputs & input services (except cement & capital goods) | Promoter must procure ≥ 80 % of annual value from registered suppliers. Shortfall attracts RCM on promoter. | 18 % (or nil if supply is nil-rated) | 30 June of following FY or on completion/first occupation, whichever earlier |
| Cement (HSN 2523) from any URP | Always under RCM | 28 % | Same timeline as above |
| Capital goods from any URP | Always under RCM | Applicable rate | On receipt |
4.2 Metal scrap purchased from unregistered suppliers
| Parameter | Details / Rule |
|---|---|
| Legislative basis | Section 9(4) of CGST Act / Section 5(4) of IGST Act • Notification 06/2024-CT(Rate) (effective 10 Oct 2024) |
| Supplies covered | Waste or scrap of all ferrous and non-ferrous metals classified under Chapters 72 to 81 of the Customs Tariff (e.g., iron, steel, aluminium, copper, brass, nickel, zinc, lead) |
| Supplier’s status | Unregistered person (below the GST threshold or otherwise not registered) |
| Recipient liable | Any GST-registered buyer (manufacturer, trader, recycler, fabricator, etc.) |
| GST rate | 18 % (CGST 9 % + SGST 9 %) for intra-State purchases • IGST 18 % for inter-State purchases |
| Time of supply | Earlier of: ① actual payment date, or ② the 31st day following the date of supply (if payment not yet made) |
| Tax payment mode | Liability to be discharged in cash via the electronic cash ledger (ITC cannot be utilised to pay RCM) |
| Input-tax credit (ITC) | Full ITC available to the recipient in the same tax period—subject to usual restrictions (blocked credits under Section 17(5) do not apply here) |
| Key compliance documents | • Self-invoice under Rule 46(b) within 30 days of supply • Payment voucher under Rule 52 at time of payment • Accounting entry for RCM liability & ITC claim in GSTR-3B (Table 4) |
| Related obligation | Separate 2 % TDS on scrap purchases from registered suppliers (Section 51 read with Notification 67/2018) — keep ledgers distinct from RCM |
No other goods or services from an URP attract RCM today. Routine buys—stationery, petty repairs, raw materials, local freight, software, etc.—are outside § 9(4) unless separately notified under § 9(3).
5. Step-by-step compliance for recipients
- Check coverage – Is the transaction within the promoter or metal-scrap bucket? If “no”, RCM does not apply.
- Raise a self-invoice (rule 46 (b)) within 30 days of supply when supplier is URP.
- Issue a payment voucher (rule 52) at the time of payment.
- Discharge tax through cash ledger (RCM must be paid in cash).
- Claim input tax credit in the same return period – GSTR-3B table 4(A)(3) for liability, table 4(B)(2) for ITC.
- Maintain records – self-invoice, voucher, proof of tax payment retained for 72 months.
- Scrap-specific TDS – From 10 Oct 2024, 2 % TDS applies on scrap purchases from registered suppliers; keep this separate from RCM accounting.
6. Illustrative scenarios
| Scenario | RCM? | Explanation |
|---|---|---|
| Promoter buys ₹50 lakh cement from village trader (URP) | Yes – 28 % on entire value | Cement always under RCM for promoters |
| Promoter’s annual inputs: ₹4.6 crore from registered vendors, ₹1.4 crore from URPs (FY 2025-26) | Yes – 18 % on ₹20 lakh shortfall | To meet 80 % registered-procurement requirement |
| Engineering company buys aluminium scrap (HSN 7602) worth ₹2 lakh from URP | Yes – 18 % | Metal scrap under § 9(4) |
| Restaurant buys vegetables worth ₹5,000 from a farmer (URP) | No | Vegetables not notified |
| Construction firm (not a “promoter”) hires URP welder for ₹25,000 | No | Labour service outside notified list |
7. Frequently asked questions
| Question | Answer |
|---|---|
| Does the ₹5,000/day relief still apply? | No; it lapsed on 30 Sept 2019. |
| Import of services from overseas URP—does § 9(4) apply? | No. Imports are covered under § 5(3) of IGST Act (separate RCM category). |
| Can composition dealers use ITC of the RCM tax on scrap? | No; composition taxpayers cannot claim ITC. |
| Is e-invoicing mandatory for self-invoices? | As of July 2025, e-invoicing is not required for documents created solely for RCM. |
| Any income-tax consequence if RCM is unpaid? | Yes. Section 37 of the Income-tax Act disallows taxes not actually paid; GST audit can also impose interest and penalties. |
8. Emerging watch-points
- Future notifications: The GST Council has hinted that other “high-risk” commodities (e-waste, used batteries) may enter § 9(4).
- Overlap with TDS/TCS: Scrap dealers now face 2 % TDS where suppliers are registered; businesses must segregate ledgers.
- Real-estate disputes: Several AAR/AAAR rulings in 2024-25 have upheld the 80 % rule; litigation largely revolves around the definition of “promoter”.
9. Key take-aways
- RCM on URP purchases is targeted, not universal. Outside the real-estate and metal-scrap pockets, everyday purchases from URPs are free of reverse charge.
- Maintain a vendor-master flagging registration status so your ERP triggers an alert when a transaction falls in either bucket.
- Train accounts-payable staff to self-invoice, pay tax in cash, and claim ITC in the same return.
- Promoters: Track the 80 % test project-wise throughout the year—don’t wait for year-end calculations.
- Metal-scrap buyers: Negotiate purchase prices net of GST; large cash deals without tax trail have become high-risk.
Handled properly, § 9(4) need not be the compliance nightmare it once was. Clear scoping, disciplined documentation and timely payment keep businesses both compliant and cash-neutral.
Stox N Tax 
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