Reverse Charge Mechanism under GST

Updated on January 30, 2026 07:27:45 AM

Under Reversed charges mechanism GST is paid by the recipient to the government other than the supplier. The main aim of the reversed charge mechanism is to enlarge the tax collection area in unorganized areas. A specific class of the supplier of goods and services and import of services.

The Reserve charge Mechanism under GST can prove to be complicated. Get help from Professional Utilities to make the Reserve charge mechanism simple and hassle-free.

Table Of Content

What is the Reserve charges mechanism under GST?

The reserve chargers mechanism is the situation under which the liability to pay the GST ie collecting and remitting the GST to the government is shifted from the supplier of goods and services to the recipient of the goods or services.

Various conditions of the mechanism of the reverse charge 

There are two conditions of the reverse charges mechanism which are covered under the Integrated Goods and Services Tax Act, 2017 (‘IGST Act’) of Section 9(3) and Section 9(4) of the CGST Act and in Section 5(3) and Section 5(4).

Goods and Services - Under Section 9(3) of the CGST Act and Section 5(3) of the IGST Act there are certain goods and services which are covered under the reverse charges mechanism in the Integrated Goods and Services Tax 

There are nine goods which are mentioned below - 

• Bidi wrapper leaves (tendu); 
• Tobacco leaves; 
• Cashew nuts, not shelled or peeled; 
•  Silk yarn;
• Used vehicles, seized and confiscated goods, old and used goods, waste and scrap; 
• Essential oils;
• Raw cotton; 
• Supply of lottery; 
• Priority Sector Lending Certificate.

List of the services under RCM in GST

• There are certain services that are covered under section 9 (3) as mentioned below - 
• GTA Services: Supply of Services by a Goods Transport Agency (GTA) in respect of transportation of goods by road to- 

           (a)   any factory registered under or governed by the Factories Act, 1948 or 

           (b)   any society registered under the Societies Registration Act,1860 or under any other law for the time being in force in any part of India

• Legal Services Services provided by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly.
• Sponsorship Services Service provided to anybody corporate or partnership firm.
• Arbitral Services Services supplied by an arbitral Tribunal to a business entity.
• Services supplied by a director of a company or a body corporate to the said company or the body corporate.
• Services provided by a recovery agent to a banking company or a financial institution or a non-banking financial company.
• Services provided by Business Facilitator (BF) to a banking company.
• Services provided by an agent of Business Correspondent (BC) to Business Correspondent (BC).
• Services of lending securities of Securities under Lending scheme, 1997 (Scheme). Securities and Exchange Board of India (SEBI), as amended. 
• Services provided by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, provided to a body corporate.
• Services provided by the members of Overseeing Committee to (Reserve Bank of India  Effective from 13-10-2017)
• The provision of services to a publisher by an author through the transfer or authorization of use or enjoyment of a copyright protected by clause (a) of subsection (1) of section 13 of the Copyright Act of 1957 with regard to original literary works.

Goods supplier from unregistered supplier to registered supplier - Supply of the taxable goods or services or both from the unregistered supplier to the registered person then the reverse charges mechanism applies. These transactions have no limit under the reverse charge mechanism.

Reversed charge Mechanism is applicable in which the supply

Under the reverse charge mechanism threshold limit is not required for registration under GST but in the special category states the prescribed limit is 20lakhs. 

When ITC on RCM can be claimed

Time of supply of goods under RCM

In respect of the supplies of the goods, the tax will be liable to be paid or is paid. The earliest of these will be the time of supply - 

• The date on which the payment is debited in a bank account or the date of payment as entered in the books of the recipient or, earlier of both.
• Receipt of goods’ date.
• The day that comes after 30 days from the date that the supplier issued the invoice or any other document, or its other comparable document.

Time of supply of goods under RCM

In respect of the supplies of the goods, the tax will be liable to be paid or paid on reverse charges basis. The earliest of the following will be a time of supply - 

The date of payment as it appears in the recipient's accounting records or Reverse charge basis is required for payment whichever is earlier.

The day that comes 60 days from the day that the provider issued the invoice or any other documents, similar documents, or any combination thereof. Provided The date of entry in the recipient of the supply's books of accounts will serve as the time of supply in cases when the methods under clauses (a) and (b) above cannot be used to ascertain the time of supply.

GST Compliances of Reverse Charge Mechanism 

• Input tax credit - If all the requirements are fulfilled then input tax credit can claim on the tax paid. The seller can not claim ITC but the buyers can. 
• Compulsory Registration - Regardless of the turnover person liable under RCM to pay taxes need to get GST Registration. 
• Tax invoice  - Under the reverse charge mechanism on the tax invoices issued by the seller it is compulsory for him to mention 
• Tax paid - They cannot use the E-Credit ledger. Can view the E-cash ledger. Both of these can be seen on the GST Portal.
• Maintenance of Accounts - Every registered dealer is required to keep records of every sale for which he has paid tax under RCM. He must also keep track of all the evidence and documents.

Conclusion 

In the Reserve charges mechanism, GST is paid by the recipient instead of the supplier. This approach is typically utilized to transfer the compliance burden from small suppliers to major companies or people that have greater financial resources and tax compliance experience. It is relevant for the sale of notified specified situations or goods and services.

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What are the guidelines for the GST reverse charge mechanism?

Up to an aggregate value of INR 5000 per day, intrastate supplies of goods or services or both received by the registered person from the unregistered person are free from central tax payable on a reverse charge basis. No reverse charging up to a daily cap of 5000 rupees.

What are the salient features of GST laws in India?

The salient features of GST laws include a unified indirect tax system, removal of cascading taxes, seamless input tax credit, online compliance, and uniform tax rates across India to simplify taxation for businesses.

What does the RCM 60-day rule means?

The earliest of the following dates shall be used as the time of supply in the event of reverse charge: the payment date. the day immediately following 60 days from the supplier's invoice release date.

What is the reverse charge principle?

The Reverse Charge Mechanism's basic tenet is that it transfers responsibility for accounting for the VAT on a supply from the vendor to the consumer of a commodity or service. The major objective is to avoid forcing the supplier to register for VAT and file a VAT return in a Member State where he does not have an established presence.

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