Banking companies and NBFCs frequently engage direct selling agents (DSAs) to market loans, credit cards, and retail deposit products. Determining whether GST liability falls on the agent or on the financial institution depends strictly on the legal constitution of the DSA providing the service.
Statutory framework under Notification 13/2017-Central Tax (Rate)
Reverse charge is defined under Section 2(98) of the CGST Act as the liability to pay tax by the recipient of supply instead of the supplier under Section 9(3) or Section 9(4). The central government notified reverse charge on DSA services by inserting Entry 11 into Notification No. 13/2017-Central Tax (Rate) via Notification No. 15/2018-Central Tax (Rate) dated 26 July 2018.
Entry 11 specifies three mandatory conditions for reverse charge:
- Nature of service: Services supplied by Direct Selling Agents (DSAs) to a bank or non-banking financial company (NBFC).
- Supplier status: Individual direct selling agents other than a body corporate, partnership firm, or limited liability partnership (LLP).
- Recipient status: A banking company or a non-banking financial company located in the taxable territory.
Similar to legal services covered in our guide on RCM on legal services by advocate, reverse charge applies only when the supplier structure matches the exact statutory description. If the DSA operates as a private limited company, an LLP, or a partnership firm, Entry 11 does not apply. In that situation, the DSA charges GST on forward charge, just as corporate security agencies do in RCM on security services.
Common mistake: Applying RCM indiscriminately to all DSA commission payouts. If your agency vendor is an LLP or private limited company, deducting or paying RCM leads to double taxation or incorrect return disclosures under scrutiny.
Invoicing and self-invoice requirements under Section 31(3)(f)
When an individual DSA is unregistered, the recipient banking company cannot expect a tax invoice from the agent. Under Section 31(3)(f) of the CGST Act, the recipient bank or NBFC must issue a self-invoice for the inward supply received under reverse charge.
Under Rule 47A of the CGST Rules, inserted by Notification No. 20/2024-Central Tax dated 8 October 2024, the recipient must issue this tax invoice within a period of thirty days from the date of receipt of the service. In addition, official CBIC e-invoicing guidance confirms that self-invoices issued under Section 31(3)(f) for inward RCM supplies do not require an Invoice Reference Number (IRN).
Reporting RCM in Form GSTR-3B and Form GSTR-9
The bank must declare and discharge the reverse charge liability in monthly returns using the standard compliance steps:
- Liability declaration: Report the gross DSA commission and tax payable in Table 3.1(d) (inward supplies liable to reverse charge) of Form GSTR-3B.
- Discharge in cash: Pay the full RCM tax using the Electronic Cash Ledger. Input tax credit cannot be used to pay reverse charge liability.
- ITC availment: Under Section 2(62) of the CGST Act, tax paid under Section 9(3) is input tax. Avail credit in Table 4(A)(3) of Form GSTR-3B in the same tax period once payment is made.
- Annual return reconciliation: In Form GSTR-9, Table 6D captures inward supplies on which tax is paid under reverse charge under Section 9(3), cross-checked against auto-populated Table 6A figures from GSTR-3B.
Scrutiny notices issued under Rule 99 of the CGST Rules in Form GST ASMT-10 routinely check whether RCM liability declared in Table 3.1(d) has been matched with corresponding cash payments and correct self-invoicing records.
Worked example: DSA commission for retail loan sourcing
Consider Apex Commercial Bank Limited, which pays commission to two different sourcing partners during a monthly tax period:
- Agent A (Individual DSA, proprietary): Sourced home loan files. Commission approved: ₹5,00,000.
- Agency B (Corporate DSA, Private Limited Company): Sourced personal loan files. Commission billed: ₹10,00,000 plus 18% GST.
| Partner | Legal status | Commission | GST rate | Mechanism | Tax liability | Cash / ITC |
|---|---|---|---|---|---|---|
| Agent A | Individual DSA | ₹5,00,000 | 18% | RCM (Entry 11) | ₹90,000 | Bank pays ₹90,000 cash |
| Agency B | Body Corporate | ₹10,00,000 | 18% | Forward charge | ₹1,80,000 | Agency B bills bank |
Tax calculation for Agent A under RCM:
Applicable GST = ₹5,00,000 × 18% = ₹90,000 (₹45,000 CGST + ₹45,000 SGST). Apex Commercial Bank Limited generates a self-invoice under Section 31(3)(f) within 30 days, enters ₹90,000 in Table 3.1(d) of Form GSTR-3B, pays ₹90,000 cash, and avails ₹90,000 in Table 4(A)(3) as input tax credit.
Frequently asked questions
Does RCM apply if the direct selling agent is a private limited company or partnership firm?
No. RCM applies only when services are supplied by an individual DSA who is not a body corporate, partnership firm, or LLP. Corporate DSAs bill under forward charge.
Can the bank pay RCM liability using its Electronic Credit Ledger?
No. Under Section 49(4) of the CGST Act, reverse charge liability cannot be discharged using input tax credit. It must be paid in cash through the Electronic Cash Ledger.
Can a bank take input tax credit on GST paid under RCM on DSA commission?
Yes. Tax paid under reverse charge qualifies as input tax under Section 2(62) of the CGST Act, subject to normal ITC restrictions or the optional 50 percent banking reversal under Section 17(4).
Reconcile your inward supplies and RCM credits
Verify inward supplies, track tax invoice compliance, and match GSTR-2B figures directly against your purchase register. Your GSTR-2B and purchase register files are read in your browser and never uploaded to any server.
Last checked: 23 October 2026. Sources: CBIC Tax Information Portal, GST Council RCM Notifications.