GST Reverse Charge: When the Buyer Pays GST Instead of the Seller

Normally under GST, the supplier charges and deposits GST. Under the Reverse Charge Mechanism (RCM), this obligation shifts to the recipient. The recipient must self-assess the GST, pay it, and can then claim it as Input Tax Credit.

WHEN DOES RCM APPLY

RCM applies under the CGST Act in two main provisions:

Section 9(3): The government has notified specific categories of goods and services where RCM applies regardless of supplier registration status. Key notified services include:
- Legal services by an advocate or firm of advocates
- Services by a director of a company (sitting fees, commission)
- Insurance agent services to an insurance company
- Goods Transport Agency (GTA) services, where GTA has not opted to pay under forward charge
- Security services by any person other than a body corporate
- Renting of residential dwelling to a registered person (added by Notification 05/2022-Central Tax Rate)

Section 9(4): RCM applies when a registered person receives supplies from an unregistered person for categories notified by the government. The current scope under 9(4) is limited to specific notified classes.

HOW TO COMPLY WITH RCM
1. Calculate the GST on the value of the supply at the applicable rate.
2. Pay the GST through your GSTR-3B return. Report RCM liability in Table 3.1(d).
3. Claim ITC on the RCM GST paid, subject to normal ITC eligibility conditions.
4. For supplies received under RCM, issue a payment voucher under Section 31(3)(g) at the time of making payment to the supplier.

TIME OF SUPPLY UNDER RCM
For services: the earlier of the date of payment or 60 days from the date of the supplier invoice.
For goods: the earlier of the date of receipt of goods, the date of payment, or 30 days from the date of the supplier invoice.

PRACTICAL TIP
RCM is often missed on payments to advocates and company directors. If your company pays legal fees or director sitting fees, check whether RCM applies. The GST paid under RCM is fully available as ITC, so the net cost is zero — but non-compliance attracts interest and penalty.