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A truck driver arrives at the loading bay of a manufacturing business in Coimbatore with a consignment-note freight bill for Rs 45,000. The bill does not carry GST — the driver says the GTA operator he works for has told him the buyer pays the tax. The AP head asks whether this is right and, if so, at what rate, on what value, in cash or against ITC, and against which GSTR-3B table. Simultaneously the tax cell has flagged a Rs 2 lakh invoice from an advocate for a legal opinion (also without GST), and the CFO wants to sign off a Rs 8 lakh import-of-services invoice from a US SaaS vendor before the September GSTR-3B filing on the 20th. All three are RCM cases under different statutory routes — Section 9(3) for the GTA and the advocate, Section 5(3) IGST for the import of services — and each carries a self-invoice obligation, a cash-payment leg, a same-month ITC claim, and a time-of-supply anchor that the AP head has to sequence before the return is finalised.
RCM under GST operates through two routes. Route one is Section 9(3) of the CGST Act (and Section 5(3) of the IGST Act for imports and inter-state cases) — the government notifies specified categories of supply where the tax is paid by the recipient rather than the supplier, listed in Notification 13/2017-CTR and Notification 10/2017-IGST across around 15 categories including GTA services, advocate services, director services, sponsorship services, and copyright royalties from authors to publishers. Route two is Section 9(4) — the general RCM on unregistered-supplier inward supplies, deferred by Notification 38/2017-CTR for most sectors and operative only for a narrow list including real-estate promoters under Notification 07/2019-CTR. For every RCM supply, the recipient — issues a self-invoice under Rule 46(f) with the 'payment on reverse charge basis' endorsement; pays the GST in cash through the electronic cash ledger (cannot use accumulated ITC under Section 49(4) read with Rule 86); claims the same amount as ITC in the same month subject to Section 17(5) and Rule 42 or Rule 43 apportionment; and recognises the time of supply under Section 13(3) as the earlier of the payment date or 60 days from the supplier's invoice date (30 days for goods under Section 12(3)). The RCM figures flow through GSTR-3B Table 3.1(d) on the outward-liability side and Table 4(A)(3) on the ITC side, with the two legs reconciled monthly against the self-invoice register.
A monthly RCM register maintained alongside the purchase register — one row per inward supply flagged for RCM, with the vendor category (Section 9(3) entry, Section 9(4) case, or import of services), the invoice date and value, the 60-day time-of-supply anchor date, the applicable GST rate, the RCM cash-payment amount, the self-invoice serial number and issue date, the ITC claim reference in GSTR-3B Table 4(A)(3), and any Rule 42 or Rule 43 apportionment where the input feeds a mixed output. A calendar-driven trigger for the 60-day Section 13(3) cutoff on every invoice sitting in the AP queue with a delayed payment. A vendor onboarding form for foreign vendors that captures the country code, the services description, and the Section 5(3) import-of-services flag. A month-end reconciliation between the RCM register cash-outflow subtotal and the electronic cash ledger, and between the self-invoice register and GSTR-3B Table 3.1(d) as filed.
The Rs 45,000 GTA freight bill is recognised as a Section 9(3) entry-1 supply, a self-invoice is issued with the RCM legend, Rs 2,250 (5 per cent) is deposited to the electronic cash ledger under CGST plus SGST for intra-state or IGST for inter-state, the payment flows through GSTR-3B Table 3.1(d) in September 2026, and Rs 2,250 is claimed back as ITC in Table 4(A)(3) of the same return producing a Rs 0 net cash-and-credit position (subject to Rule 42 apportionment if the freight was for a partly exempt output). The Rs 2 lakh advocate bill flows through the same architecture at 18 per cent (Rs 36,000 cash out, Rs 36,000 ITC in). The Rs 8 lakh US SaaS import-of-services invoice flows through Section 5(3) of the IGST Act at 18 per cent (Rs 1.44 lakh IGST cash out, Rs 1.44 lakh IGST ITC in). All three self-invoices are filed, GSTR-3B Table 3.1(d) is reconciled against the RCM register, and the Section 50 late-payment interest exposure on any 60-day time-of-supply overrun is closed.
A truck driver arrives at the loading bay with a freight bill for Rs 45,000. The bill does not carry any GST. The driver says the GTA operator has told him the buyer will pay the tax.
The AP head is confused. Is this legal? At what rate? On the full Rs 45,000 or on some prescribed value? Can the accumulated ITC balance of Rs 40 lakh in the electronic credit ledger be used to pay the RCM, or does cash have to go out? And which line on the GSTR-3B does the RCM figure sit against?
The quick answer
Reverse Charge Mechanism (RCM) shifts the GST-payment obligation from the supplier to the recipient for a specified list of supplies. Under Section 9(3) of the CGST Act, the government has notified around fifteen categories in Notification 13/2017-CTR where RCM applies — goods transport agency services, advocate services, director services, sponsorship services, copyright royalties from an author to a publisher, and others. Section 5(3) of the IGST Act extends the same architecture to imports of services and cross-border cases. Section 9(4) covers the general unregistered-supplier RCM but is largely deferred except for real-estate promoters and a handful of specified classes.
For every RCM supply, the recipient issues a self-invoice under Rule 46(f), pays the GST in cash (cannot use accumulated ITC under Section 49(4)), claims it back as ITC in the same month, and recognises the time of supply under Section 13(3) as the earlier of the payment date or 60 days from the supplier’s invoice date. On the Rs 45,000 GTA freight bill, that is Rs 2,250 (at 5 per cent) in cash to the government and Rs 2,250 back as ITC in the same return — a Rs 0 net effect subject to Rule 42 or Rule 43 apportionment if the freight was for a partly exempt output.
Route 1 — Section 9(3) and the notified categories
Section 9(3) of the CGST Act 2017 authorises the government to notify specified categories of supply where the tax is paid on reverse charge basis by the recipient. The operative notification is Notification 13/2017-CTR dated 28 June 2017, which lists around fifteen categories. The categories most Indian mid-market controllers encounter in a monthly close are:
- Goods Transport Agency (GTA) services at entry 1 — freight beyond Rs 750 per single-consignment invoice or Rs 1,500 per aggregate consignment per truck, from a GTA to a registered recipient. The rate is 5 per cent (where the GTA has not opted for forward charge) or 12 per cent (where the GTA has opted for forward charge and charges GST on the invoice directly). The GTA freight RCM reconciliation walkthrough is the deeper treatment.
- Services of an advocate or a firm of advocates at entry 2 — legal advisory, court appearances, and litigation support, to a business entity with turnover above the exemption threshold. The rate is 18 per cent under the standard services schedule.
- Services supplied by a director of a company to that company at entry 6 — sitting fees, commission, and other consideration paid to a non-executive director. The rate is 18 per cent.
- Services supplied by an insurance agent at entry 7 — commission paid to an insurance agent by an insurance company. The rate is 18 per cent.
- Services supplied by a recovery agent to a bank or NBFC at entry 8 — the rate is 18 per cent.
- Copyright from an author to a publisher at entry 9 — royalties paid to the author of a literary or artistic work covered under Section 13(1)(a) of the Copyright Act 1957. The rate is 12 per cent.
The parallel Notification 10/2017-IGST covers cross-border cases — import of services from a supplier outside India, ocean-freight on CIF-import consignments, and the associated Section 5(3) IGST route.
Route 2 — Section 9(4) and the unregistered-supplier trap
Section 9(4) of the CGST Act authorises the government to notify a class of registered persons who must pay RCM on inward supplies received from an unregistered supplier. The general Section 9(4) was deferred by Notification 38/2017-CTR shortly after the GST rollout, so most inward supplies from unregistered vendors do NOT trigger RCM today.
The single operative exception a mid-market finance team encounters is the real-estate promoter under Notification 07/2019-CTR. A promoter of a residential real-estate project is required to procure at least 80 per cent of inward supplies of goods and services from registered suppliers. Any shortfall against the 80 per cent threshold triggers RCM on the unregistered-supplier portion — 18 per cent on services, and prescribed rates on cement and other specified goods.
A gold-and-jewellery business buying scrap gold from an unregistered retail seller sits in a specialised Section 9(4) sub-notification — the gold scrap purchase from an unregistered supplier under Section 9(4) walkthrough is the deeper treatment of this narrower case.
For every other business, an inward supply from an unregistered vendor is simply a GST-free purchase — no output tax on the vendor’s side, no RCM on the recipient’s side, and no ITC flowing into the electronic credit ledger. The composition-scheme vendor question is a related-but-distinct case where the vendor is registered (under Section 10) but does not charge GST on the invoice, and the recipient cannot claim ITC.
The four operational steps for every RCM supply
Once an inward supply is flagged as RCM (under either Section 9(3) or Section 9(4)), the recipient runs four operational steps:
Step 1 — Issue a self-invoice under Rule 46(f). The self-invoice bears the recipient’s GSTIN, the supplier’s details (name and address where available), the description of the supply, the value, the applicable GST rate, and the endorsement “payment on reverse charge basis”. The self-invoice is the audit-trail anchor for every downstream leg — the cash payment, the ITC claim, the GSTR-3B reconciliation. Missing self-invoices are the single most common finding on a first-time GST audit of a mid-market business that has been paying RCM without documenting the recognition leg.
Step 2 — Pay the GST in cash through the electronic cash ledger. Section 49(4) read with Rule 85 and Rule 86 restricts the electronic credit ledger to output-tax payments only. The RCM liability is a self-liability rather than an inward-invoice — it flows through the electronic cash ledger. The recipient deposits the cash under CGST plus SGST for an intra-state supply, or IGST for an inter-state supply or an import of services. The Rs 40 lakh sitting in the electronic credit ledger cannot be used for the Rs 2,250 GTA freight RCM — cash goes out.
Step 3 — Claim the RCM tax back as ITC in the same month. The payment flows through GSTR-3B Table 3.1(d) on the outward-liability side of the return, and the recipient simultaneously claims the same amount as ITC in Table 4(A)(3), subject to Section 17(5) blocked-credit rules and — for a mixed taxable-and-exempt output profile — the Rule 42 or Rule 43 apportionment covered in the Rule 42 and Rule 43 common-credit walkthrough. Where the RCM input feeds a fully taxable output, the net cash-and-credit position after the two legs is Rs 0.
Step 4 — Recognise the time of supply under Section 13(3). For services under RCM, the time of supply is the earlier of — the date the payment is entered in the recipient’s books or debited from the bank account, or the date immediately following 60 days from the supplier’s invoice date. For goods under Section 12(3), the earlier of the receipt-of-goods date, the payment date, or 30 days from the invoice date. This 60-day (or 30-day) clock triggers the RCM liability even if the recipient has not paid the vendor. A held-back or disputed invoice does not defer the RCM cash outflow.
Illustrative arithmetic — three inward supplies through the same architecture
Three worked examples for a mid-market business’s September 2026 GSTR-3B:
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Rs 45,000 GTA freight for an intra-state consignment. Section 9(3) entry 1. Rate 5 per cent (GTA has not opted for forward charge). RCM = 5 per cent x Rs 45,000 = Rs 2,250, split as Rs 1,125 CGST plus Rs 1,125 SGST. Cash out through the electronic cash ledger, GSTR-3B Table 3.1(d) shows Rs 2,250, Table 4(A)(3) claims Rs 2,250 back. Net cash-and-credit position — Rs 0. Self-invoice serial for the month is filed against the freight bill.
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Rs 2,00,000 advocate fee for a legal opinion (intra-state). Section 9(3) entry 2. Rate 18 per cent. RCM = 18 per cent x Rs 2,00,000 = Rs 36,000, split as Rs 18,000 CGST plus Rs 18,000 SGST. Cash out Rs 36,000, ITC claim Rs 36,000 in the same month. Net cash-and-credit position — Rs 0.
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Rs 8,00,000 SaaS subscription from a US-headquartered vendor with no permanent establishment in India. Section 5(3) of the IGST Act (import of services). Rate 18 per cent. RCM = 18 per cent x Rs 8,00,000 = Rs 1,44,000 IGST. Cash out through the electronic cash ledger under the IGST head, ITC claim Rs 1,44,000 in Table 4(A)(3). Net cash-and-credit position — Rs 0, subject to the RCM leg surviving Section 17(5) scrutiny (a SaaS input feeding an outward taxable supply is generally admissible).
For a business with a partly exempt output profile — a healthcare provider providing exempt medical services alongside taxable diagnostic services, for instance — the ITC claim in step 3 must be apportioned under Rule 42 (for inputs and input services) or Rule 43 (for capital goods). The apportioned portion goes to the electronic credit ledger, the exempt portion is written off, and the net cash effect on the recipient is no longer Rs 0.
The one to escalate first — the 60-day Section 13(3) trigger
The single largest source of a late-interest exposure under Section 50 is a held-back or disputed invoice where the recipient has treated RCM as a payment-linked event and missed the 60-day time-of-supply cutoff. An advocate bill dated 1 August 2026, sitting in the AP queue on 30 September 2026 because the invoice is under commercial dispute, will trigger the RCM liability on 30 October 2026 under Section 13(3) — 60 days from 1 August 2026. If the recipient does not pay the RCM in the October 2026 return, the liability is outstanding from 30 October 2026 and Section 50 interest at 18 per cent per annum begins to accrue.
Extract every RCM-flagged inward supply from the AP queue that is over 45 days old and has not been paid. For each, the RCM cash outflow is due in the month that contains the 60-day cutoff — regardless of the commercial dispute status. The dispute is between the recipient and the vendor over the merits of the invoice; the RCM obligation is between the recipient and the government and does not wait on the dispute resolution.
When the manual RCM register outgrows itself
A small Indian business with a handful of GTA freight bills a month, an occasional advocate invoice, and no cross-border services can hold the RCM tracking in a single spreadsheet — one row per RCM inward supply, with the vendor, invoice date, value, category, rate, cash payment, self-invoice serial, and ITC claim reference. The AP head refreshes it around Day 12 of the monthly close alongside the GSTR-2B ITC runbook for Days 11 to 15, and the discipline holds.
A mid-market business with fifty-plus RCM inward supplies a month across GTA, advocate, director sitting fees, sponsorship, insurance-agent commission, recovery-agent commission, and cross-border SaaS imports is running a rolling classification exercise that a spreadsheet cannot hold reliably. The exposure is compounded — misclassified self-invoices, missed 60-day triggers on disputed invoices, incorrect rate application on the specified categories, and Rule 42 apportionment misses on the mixed-output ITC leg.
At that scale, moving the RCM register, the 60-day time-of-supply calendar, and the Rule 42/43 apportionment onto continuously refreshed detection — where Terra Insight’s GST reconciliation software treats the four RCM operational steps as first-class monthly outputs alongside the GSTR-2B reconciliation and the ITC-at-risk queue — is what keeps the Section 50 interest exposure closed and the audit-trail defensible. Below that scale, the monthly spreadsheet plus the through-the-year discipline of running the four steps by hand is the right tool.
Go deeper
- GST RCM under Section 9(3) and Section 9(4) — the pillar-level statutory treatment
- GTA freight RCM reconciliation — the transport-services walkthrough
- Gold scrap purchase from an unregistered supplier under Section 9(4)
- What is Rule 42 and Rule 43 common credit and when do I apply it
- GSTR-2B ITC runbook for Days 11 to 15 of monthly close
- GST reconciliation software for India
Frequently Asked Questions
What exactly does reverse charge mechanism mean under GST?
Reverse charge mechanism (RCM) shifts the GST-payment obligation from the supplier to the recipient of the supply. Under the normal charge mechanism, the seller collects GST from the buyer, files the outward supply on GSTR-1, and remits the GST to the government on GSTR-3B. Under RCM, the seller does not charge GST on the invoice at all — the recipient pays the GST directly to the government in cash through GSTR-3B Table 3.1(d) and simultaneously claims it as ITC in Table 4(A)(3), producing a Rs 0 net cash effect where the recipient’s output tax profile can absorb the credit. Section 9(3) of the CGST Act lists the specified categories where RCM applies compulsorily (goods transport agency services, advocate services, director services, and around a dozen more). Section 9(4) covers the deferred general unregistered-supplier route, largely inoperative except for real-estate promoters and a handful of specified classes.
Can I use my ITC balance to pay the RCM tax?
No — RCM tax must be paid in cash. Section 49(4) read with Rule 85 and Rule 86 restricts the electronic credit ledger to output-tax payments only. The RCM liability is treated as a self-liability rather than an inward-invoice, so it flows through the electronic cash ledger. The recipient deposits the cash under the appropriate head (CGST plus SGST for intra-state RCM, IGST for inter-state RCM or import of services), makes the payment through GSTR-3B Table 3.1(d), and then in the same month claims the amount back as ITC in Table 4(A)(3) subject to Section 17(5) blocked-credit rules and Rule 42 or Rule 43 apportionment where the input is used for a mixed taxable-and-exempt output. The Rs 0 net effect materialises across the two ledger legs — cash out on payment, credit in on ITC claim — not through a direct set-off inside GSTR-3B.
The vendor is a GTA truck driver charging Rs 45,000 for freight. Do I pay RCM?
Yes — Goods Transport Agency (GTA) services fall under the Section 9(3) notified list at entry 1 of Notification 13/2017-CTR. Where the freight consignment exceeds Rs 750 per single-consignment invoice or Rs 1,500 in aggregate per truck for a single consignor-consignee pair, the RCM applies on the entire freight value (not the excess). On a Rs 45,000 freight bill from a GTA to a registered business (that is not a small unregistered consignor), the RCM rate is 5 per cent (without ITC option elected by the GTA) or 12 per cent (with ITC option — but then the GTA charges GST directly under forward charge). If the GTA has not opted for the 12 per cent forward-charge route, the recipient pays 5 per cent RCM in cash = Rs 2,250 and claims Rs 2,250 as ITC in the same month, subject to Rule 42 apportionment if the freight was for a mixed taxable-and-exempt supply. The GTA is expected to endorse the freight bill with a declaration confirming its RCM status.
What is the time-of-supply for RCM services and why does the 60-day clock matter?
Section 13(3) of the CGST Act defines the time of supply for services under RCM as the earlier of two dates — the date the recipient records the payment in their books or debits it from their bank account, or the date immediately following 60 days from the supplier’s invoice date. This means the RCM liability arises even if the recipient has not yet paid the vendor. On a legal-advocate invoice dated 1 August 2026 with the recipient still holding back payment on 30 September 2026, the 60-day cutoff (30 October 2026 in this case) will trigger the RCM liability in the October 2026 return regardless of the actual payment status. The audit-trail trap is common — controllers treat RCM as a payment-linked event and miss the 60-day trigger for a disputed or held-back invoice, resulting in a late-payment interest exposure under Section 50 that surfaces only on a scrutiny audit.
Do I need to issue a self-invoice for every RCM inward supply?
Yes. Rule 46(f) read with Rule 47 requires the recipient under RCM to issue a self-invoice against every inward supply falling under Section 9(3) or Section 9(4). The self-invoice bears the recipient’s GSTIN, the supplier’s details (name and address where available), the description of the supply, the value, the applicable GST rate, and the endorsement ‘payment on reverse charge basis’. For imports of services under Section 5(3) of the IGST Act, the self-invoice also bears the foreign supplier’s details and the country code. The self-invoice is the audit-trail anchor — it evidences the recipient’s own recognition of the RCM liability, feeds the GSTR-3B Table 3.1(d) figure, supports the same-month ITC claim in Table 4(A)(3), and is what a scrutiny audit will ask for when validating the RCM leg of an outward-and-inward reconciliation. Missing self-invoices are the single most common finding on a first-time GST audit of a mid-market business that has begun paying RCM only after a vendor query.
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
- ▸ Section 9(3), Central Goods and Services Tax Act 2017 — The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. The corresponding provision in the IGST Act 2017 is Section 5(3), which extends the same architecture to inter-state supplies and to the import of services from outside India. Notification 13/2017-Central Tax (Rate) dated 28 June 2017 lists the specified categories under Section 9(3) — including goods transport agency services, legal services of an advocate or firm of advocates, arbitral tribunal services, sponsorship services, services supplied by the Central Government or a State Government to a business entity, services supplied by a director of a company to that company, services supplied by an insurance agent, services supplied by a recovery agent to a bank, transfer or permitting the use or enjoyment of a copyright covered under Section 13(1)(a) of the Copyright Act 1957 by an author to a publisher, and services supplied by members of the overseeing committee to the Reserve Bank of India. Notification 10/2017-Integrated Tax (Rate) is the parallel IGST list that adds cross-border import of services and ocean-freight into the RCM net.
- ▸ Section 9(4), Central Goods and Services Tax Act 2017 — The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both. The general Section 9(4) unregistered-supplier RCM was deferred by Notification 38/2017-CTR and remains largely inoperative, except for specified classes — the most prominent operative case is the promoter of a real-estate project receiving unregistered-supplier inputs under Notification 07/2019-CTR (which requires 80 per cent of inward supplies of goods and services to be from registered suppliers, with the shortfall attracting RCM at 18 per cent on services and prescribed rates on goods). The Section 9(4) route is therefore narrower than the Section 9(3) list — most operational RCM triggers a controller sees in a mid-market Indian business flow from the Section 9(3) notified categories rather than the general unregistered-supplier route.
- ▸ Section 13(3), Central Goods and Services Tax Act 2017 — In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates, namely — the date of the payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or the date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier. The time-of-supply anchor for RCM on services is therefore a 60-day clock from the supplier's invoice date. If the payment lands within 60 days, the earlier of payment date and 60-day cutoff triggers the RCM liability. If the payment slips past 60 days, the 60-day cutoff triggers the RCM liability on its own — the recipient cannot defer the RCM cash outflow by delaying payment to the vendor. For RCM on goods, Section 12(3) applies a similar earliest-of test — date of receipt of goods, date of payment, or 30 days from the invoice date.
- ▸ Rule 46(f), Central Goods and Services Tax Rules 2017 — A tax invoice referred to in Section 31 shall be issued by the registered person containing the following particulars, namely — the name, address, and Goods and Services Tax Identification Number of the recipient where such recipient is registered; and where the recipient is not registered and the value of the taxable supply is fifty thousand rupees or more, the name and address of the recipient and the address of delivery, along with the name of the State and its code. Sub-rule (1) proviso (f) requires — where the tax is paid on reverse charge basis, the invoice shall contain the words "payment on reverse charge basis" endorsed on the face of the invoice. Rule 46(f) read with Rule 47 requires the recipient under RCM to issue a self-invoice against every inward supply under Section 9(3) or Section 9(4) — the self-invoice bears the recipient's GSTIN, the supplier's details (name and address where available), the description of the supply, the value, the applicable GST rate, and the RCM legend. The self-invoice is the audit-trail anchor for the recipient's cash-payment leg and the subsequent ITC claim.
- ▸ Section 49(4), Central Goods and Services Tax Act 2017 — The amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and within such time as may be prescribed. Section 49(4) read with Rule 85 and Rule 86 restricts the use of the electronic credit ledger to output tax payments only. The RCM tax paid by the recipient is treated as a self-liability rather than an inward-invoice ITC — the payment must therefore be made in cash through the electronic cash ledger and cannot be offset against the accumulated ITC balance. This is the operational trap most first-time RCM payers hit — the ITC balance shows Rs 40 lakh in the electronic credit ledger, but the Rs 2,250 GTA-freight RCM liability still has to be paid in cash. The recipient then claims the RCM tax as ITC in the same month under Section 16(1), which flows back into the electronic credit ledger and can be used against output tax in subsequent months.