• Normally, suppliers of goods or services collect GST

from the receivers and deposit it with the tax

authorities.
• But under the reverse charge mechanism, receivers
of goods or services pay the tax instead of suppliers.
• Thus, if you are a recipient of goods or services
under reverse charge, you must remit only the
purchase payments to suppliers. As for GST, you as
a recipient must deposit the tax directly with the
tax authorities.
• This tax collection mechanism is aimed at reducing
tax evasion, particularly from the unorganized
sectors.
When is Reverse Charge Applicable?
A. Supply from an Unregistered dealer to a Registered
dealer
• If a vendor who is not registered under GST, supplies
goods to a person who is registered under GST, then
Reverse Charge would apply.
• This means that the GST will have to be paid directly by
the receiver, who is a registered dealer to the
Government instead of the supplier.
• The registered dealer who has to pay GST under reverse
charge has to do self-invoicing for the purchases made.
• For Inter-state purchases the buyer has to pay IGST. For
Intra-state purchased CGST and SGST has to be paid
under RCM by the purchaser.
B. Services through an e-commerce operator
• If an e-commerce operator supplies services then reverse
charge will be applicable to the e-commerce operator. He will
be liable to pay GST.
• If the e-commerce operator does not have a physical presence
in the taxable territory, then a person representing such
electronic commerce operator for any purpose will be liable to
pay tax. If there is no representative, the operator will appoint
a representative who will be held liable to pay GST.
• For example, UrbanClap provides services of plumbers,
electricians, teachers, beauticians etc. UrbanClap is liable to
pay GST and collect it from the customers instead of the
registered service providers.
•  In case of transport service provided by taxi aggregator OLA,
OLA is liable to pay the GST. OLA will collect tax from
passengers instead of the registered service providers.
• C. Supply of certain goods and services specified
by CBIC
• CBIC has issued a list of goods and a list of
services on which reverse charge is applicable.
• If you are purchasing goods/services which are
specified by the CBIC under reverse charge, you as
a recipient must pay GST. These include: (i) goods
transport services, (ii) insurance agencies, (iii)
recovery agencies, (iv) legal services, (v)
transportation services for imported goods etc.
What is Self Invoicing?
• Self-invoicing is to be done when a business
owner had purchased from an unregistered
supplier and such purchase of goods or services
falls under reverse charge.
• This is due to the fact that the supplier cannot
issue a GST-compliant invoice to the purchaser,
and thus the purchaser becomes liable to pay
taxes on their behalf. Hence, self-invoicing, in this
case, becomes necessary.
Time Of Supply Under Reverse Charge Mechanism
 Tax for goods under the reverse charge mechanism should be paid on the earliest
of the below dates:
– The Date on which the goods are received
– Date of payment as entered in the books of accounts of the recipient or the
date on which the payment is debited in his account, whichever is earlier
– Date immediately following 30 days from the date of issuing the invoice by
the supplier or any other legal document in lieu of invoice by the supplier.
• Where it is not possible to determine the time of supply, under the above
mentioned cases, the time of supply shall be the date of entry in the books of
accounts of the recipient of supply.
 Tax for services under the reverse charge mechanism should be paid on the
earliest of the below dates:
– Date of payment as entered in the books of accounts of the recipient or the
date on which the payment is debited in his account, whichever is earlier
– Date immediately following 60 days from the date of issuing the invoice by the
supplier or any other legal document in lieu of invoice by the supplier
• Where it is not possible to determine the time of supply, under the above
mentioned cases, the time of supply shall be the date of entry in the books of
accounts of the recipient of supply.
Illustration 1: for goods
• Date of receipt of goods 15th May 2017
• Date of invoice 1st June 2017
• Date of entry in books of receiver 18th May 2017
The Time of supply of goods, in this case, will be
15th May 2017
• Illustration 2:for goods
• Date of receipt of goods 15th June 2017
• Date of entry in books of receiver 18th May 2017
• The Time of supply of goods, in this case, will be
18th May 2017.
Illustration 3: for services
• Date of payment 15th July 2017
• Date immediately after 60 days from the date
of issue of invoice (Suppose the date of invoice
is 15th May 2017, then 60 days from this date
will be 14th July 2017)
• Date of entry in books of receiver 18th July 2017
The Time of supply of service, in this case, will be
14th July 2017.
ITC Under Reverse Charge
• Input tax credit can be claimed by the buyer if the
purchase by a registered person is from an unregistered
dealer, which has incurred the Reverse Charge.
• However, it can be claimed only if such goods/services
are used or will be used for the purpose of business only.
• Also, a supplier cannot claim ITC on the tax paid on
goods/services that were used to make supplies that
incur reverse charge, on which recipient is liable to pay tax.
• A person who is required to pay tax under
reverse charge has to compulsorily register under GST.
• Also, the threshold limit of Rs. 40 lakhs (Rs. 20 lakhs for
special category states) is not applicable to them.
• Requirements under the reverse charge mechanism
• The recipient of goods/services must be registered
under GST.
• Every registered business owner should maintain
accurate records of supplies that would incur reverse
charge.
• Wherever reverse charge applies, the supplier must
clearly mention on the invoice that the tax payable for
that specific transaction is through reverse charge.
Similarly, the same should be mentioned on receipt
vouchers and refunds vouchers.
• Advance paid on supplies that incur reverse charge is
taxable under GST. The taxpayer making advance
payment should pay tax on reverse charge basis.
 Exemptions under reverse charge
• A registered business owner is exempted from paying GST
through reverse charge on intra-state purchases from
unregistered sellers, as long as the total value of the
supply received per day is less than or equal to Rs.5,000/-.
• From notification on 13th October 2017, this exemption was
replaced that the entire purchase was exempted under CST
subject the listed goods 
• If the supply involves exempted goods/services RCM will not
be applicable.
Payment under RCM
Any liability arises under RCM need to be paid only in cash, i.e
through Cash ledger. ITC cannot be used to pay outward liability
under RCM.
 
Examples:
• A registered person hires an auto rickshaw for
commuting from one place to another. 
This section will not apply as the transportation of
passenger by auto rickshaw is exempted from GST.
• A registered person stays in a budget hotel whose tariff
is Rs. 800 per day. Is GST applicable on RCM?
Since the room tariff is less than ₹1,000 it is exempted from
GST. The question of RCM does not arise.
Compliances in respect of supplies under reverse
charge mechanism:
• As per section 31 of the CGST Act, 2017 read with
Rule 46 of the CGST Rules, 2017, every tax invoice
has to mention whether the tax in respect of supply
in the invoice is payable on reverse charge.
• Similarly, this also needs to be mentioned in receipt
voucher as well as refund voucher, if tax is payable
on reverse charge.
• Maintenance of accounts by registered persons:
Every registered person is required to keep and
maintain records of all supplies attracting payment
of tax on reverse charge
General information to know on New Provisions
• With the introduction of the new provisions, the scope of section 9 (4) of the CGST
Act, 2017 has been restricted. From now, only on the specified categories of a
taxable supply of goods or services or both from the unregistered person and by
only the specified category of a registered person shall be liable to pay the tax on a
reverse charge basis.
• As per the new provisions, instead of coverage of all the registered person, now, the
Government shall specify the class of the registered person who shall be liable to
pay tax under reverse charge basis;
• As per the new provisions, instead of coverage of all the taxable supply of goods or
services or both, the Government shall specify categories of goods or services or
both on which reverse charge provisions are applicable when such goods or services
or both is received from the unregistered person.
• After the introduction of the new provisions of section 9(4) till now, the
Government has neither specified the class of registered person to whom the
provisions are applicable nor has provided the specified categories of a taxable
supply of goods or services or both.