TDS › Reverse charge

Reverse charge in GST

Normally the seller collects GST. Under reverse charge (RCM) the buyer pays the GST to the government instead. A small business meets it more often than it thinks.

When reverse charge applies

• Notified goods and services (section 9(3)): for example goods transport agency services (when the agency has not opted to charge GST itself), legal services by an advocate to a business, sponsorship, services of a director to the company, security services from a non-company supplier, and renting of commercial property by an unregistered person to a registered business (from 10 October 2024, Notification 9/2024-Central Tax (Rate)).
• Notified purchases from unregistered suppliers (section 9(4)): only for notified classes of buyers, such as real estate promoters.
• Import of services.

The notifications have conditions and exceptions; check the current list for the service you buy.

What the buyer must do

1. Self invoice when the supplier is unregistered (section 31(3)(f)), within 30 days of receiving the goods or services (Rule 47A, from 1 November 2024). Make one on self-invoice.niveshsahayak.in.
2. Payment voucher when you pay the supplier (section 31(3)(g)). voucher.niveshsahayak.in has a reverse charge tick.
3. Pay the GST in cash in GSTR-3B table 3.1(d); input tax credit cannot be used for it.
4. Take the same amount as ITC in table 4(A)(3), if the purchase is for business and not blocked.

Example

A registered garment shop in Ludhiana pays ₹40,000 a month rent to an unregistered landlord. Each month it makes a self invoice, pays GST of 18%, ₹7,200 (CGST ₹3,600 + SGST ₹3,600), in cash with GSTR-3B, and takes ₹7,200 back as ITC. The net cost is nil, but the cash goes out first, and missing it means interest and lost credit.

See it in the working

The GSTR-3B working picks up reverse charge tax from your saved self invoices and vouchers and shows it as cash payable.