What is reverse charge mechanism?
Normally the seller collects GST from the buyer and pays it to the government. That is forward charge. Under the reverse charge mechanism (RCM), the liability is flipped: the buyer pays the GST directly to the government, and the seller's invoice carries no GST.
RCM applies in two situations:
- Notified goods and services (section 9(3)): the government lists supplies where the recipient always pays, whoever the supplier is.
- Purchases from unregistered suppliers (section 9(4)): only for notified categories, such as specified inputs bought by real-estate developers.
Common supplies under RCM in 2026
| Supply | Supplier | Who pays GST |
|---|---|---|
Goods transport by road (GTA), where the GTA hasn't opted to charge GST itself | Goods transport agency | Business recipients such as companies, firms, factories and registered persons |
Legal services | Individual advocate or firm of advocates | Business entity receiving them |
Director's services | Director (not as an employee) | The company |
Sponsorship | Anyone | Body corporate or partnership firm |
Security services | Supplier other than a body corporate | Registered recipient (with some exceptions) |
Renting of commercial property (not residential) | Unregistered landlord | Registered tenant (from 10 October 2024; composition-scheme tenants were later excluded) |
Services of insurance agents and recovery agents | Agent | Insurer / bank / NBFC |
Raw cotton, unshelled cashew nuts, tobacco leaves | Agriculturist and others | Registered buyer |
The full list is longer and changes by notification, so check the current notification for anything unusual before relying on this table.
How to pay GST under reverse charge
- Issue a self-invoice when you buy from an unregistered supplier, within 30 days of receiving the goods or services. Issue a payment voucher when you pay.
- Work out the time of supply. For services, it is generally the earlier of the payment date and 60 days after the supplier's invoice.
- Pay the tax in cash through your electronic cash ledger. RCM liability cannot be paid from input tax credit.
- Report it in GSTR-3B as an inward supply liable to reverse charge.
- Claim the credit in the same GSTR-3B, if the purchase is for business and the credit isn't blocked.
For most businesses the cash outflow comes back as credit the same month. The cost of getting it wrong is interest and penalties when an audit finds RCM that was never paid.
Mistakes that trigger notices
- Office rent to an individual landlord. Since October 2024, a registered tenant renting a commercial space from an unregistered landlord owes RCM on the rent. This is the most commonly missed item.
- Advocate's fees paid without RCM.
- Directors' sitting fees or commission, booked without RCM.
- Freight paid to transporters without checking whether the GTA charged GST.
TaxQue's GST return filing team reviews your expense ledger for RCM items every month. If a notice has already arrived, see GST notice resolution.
