GST glossary
Reverse charge
Reverse charge mechanism (RCM)
Under reverse charge, you as the buyer pay the GST on a purchase directly to the government, instead of the supplier collecting it from you. It applies to notified goods and services, such as legal fees from an advocate, and to services imported from abroad.
Why it matters to your business
Reverse charge is easy to miss because no GST appears on the bill. Yet the tax is due, and an officer reviewing your books will ask for it with interest. Since you usually get the same amount back as input tax credit, paying it on time costs you little; missing it costs interest and, often, the credit itself.
How it works
As of September 2026:
- The government notifies the goods and services on which the recipient pays tax. The list is mostly services, plus a few goods such as raw cashew and tobacco leaves bought from agriculturists.
- You report the purchase in table 3.1(d) of GSTR-3B and pay the tax in cash.
- You claim the same amount as credit in table 4 of the same return, if the purchase is for your business and not blocked.
- The time of supply is generally the date of payment, or a set number of days after the supplier’s invoice, whichever is earlier.
- Registered businesses under the composition scheme are exempt from reverse charge on rent of commercial property from an unregistered landlord.
An example
Your company pays a law firm ₹50,000 for drafting a contract. The firm’s bill shows no GST and says “tax payable on reverse charge”. You pay 18% GST, ₹9,000, in cash through GSTR-3B, and claim ₹9,000 as input tax credit in the same return. The net cost to you is nil, provided you pay on time.
Common mistakes
- Paying reverse-charge tax from the credit ledger instead of cash.
- Missing rent paid to an unregistered owner of a shop or office.
- Forgetting the self-invoice for purchases from unregistered suppliers.
- Charging GST yourself on a sale where your customer is the one to pay under reverse charge.
Questions about Reverse charge
Which purchases fall under reverse charge?
Common examples are legal services from an advocate or law firm to a business, services of a director to the company, sponsorship services, freight from a goods transport agency that has not chosen to charge GST itself, security services from a non-corporate supplier, rent of commercial property from an unregistered landlord, and services imported from abroad.
Can I pay reverse-charge tax from my input tax credit?
No. Tax under reverse charge must be paid in cash through your GSTR-3B. Once paid, it becomes input tax credit in the same return if the purchase is otherwise eligible.
Do I need to issue an invoice under reverse charge?
When you buy from an unregistered supplier under reverse charge, you issue a self-invoice within 30 days of receiving the goods or services, and a payment voucher when you pay.
Does the supplier charge GST on a reverse-charge invoice?
No. The supplier's invoice states that tax is payable on reverse charge, and does not collect the GST. You work out and pay it.
Updated .