Typically,business owners collect taxes on behalf of the customers. Then they pay it to the government. Reverse charge is when the buyer pays the tax directly to the government. 
The responsibility of reverse charge can either rest completely on the buyer. In certain special cases, it can be partially/jointly borne both by the buyer and the seller.
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When is reverse charge applicable?

It is applicable on both goods and services. The following are the situations in which reverse charge will be applicable: 

A. Supply from an unregistered dealer to a registered dealer

If an unregistered vendor sells goods to a registered person Reverse Charge is applicable. This means that the receiver will pay GST directly 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 purchases, purchaser will pay CGST and SGST.

GST Registration, Reverse Charge Mechanism, RCM under GST

B. Services through an e-commerce operator

If an e-commerce operator provides services then reverse charge will be applicable. The e-commerce operator will be liable to pay GST.
It is possible that the e-commerce operator is not physically present in the taxable territory. Then a person representing such e-commerce operator for any purpose will be liable to pay tax. If there is none, the operator will appoint a representative who will have to pay GST.

C. Supply of certain goods and services specified by CBEC

CBEC has issued a list of goods and a list of services on which reverse charge is applicable.
  1. Goods
    • Cashew nuts, not shelled or peeled
    • Bidi wrapper leaves (tendu)
    • Tobacco leaves
    • Silk yarn
    • Supply of lottery
  2. Services
    • Services provided by a person in a non-taxable territory
    • Transport of goods by road
    • Services provided by an arbitrary tribunal
    • Sponsorship services
    • Services provided by government or local authority. This excludes renting of immovable property, postal services, insurance and agency services, services provided to an aircraft or ship in an Indian airport or port and transport of goods/passengers.
    • Legal services
    • Services offered by a director or corporate body to their own company
    • Recovery agent services
    • Services of an insurance agent
    • Transport of goods by a vessel from overseas to a customs office in India
    • Transfer of /Giving permission to copyrighted content (as according to section 13(1) of copyright act 1957)
    • Taxi services through an e-commerce operator

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 Requirements under RCM, Requirements under Reverse Charge

Time of supply for goods and services under reverse charge

The time of supply for a transaction is the date on which taxes are levied upon the supplies. The time of supply in case of goods will be the earliest of the following dates:
  • date of receipt of goods or
  • the date of payment or
  • date immediately after 30 days from the invoice date for goods(60 days for services)  
Reverse Charge, Reverse Charge Mechanism, Reverse Charge GST, Reverse Charge Mechanism under GST
Note: If none of the above applies,then it can also
be the date of entry in the books of the receiver.

ITC on reverse charge

A buyer can claim Input tax credit as long as he uses the purchased goods and services business purposes onlyAlso, a supplier cannot claim ITC on the tax paid on goods/services that were used to make supplies that incur reverse charge.


When a business owner purchases from an unregistered supplier, he will have to do self—invoicing. This is because the unregistered supplier cannot issue a tax invoice

Exemptions under reverse charge

A registered business owner does not have to pay GST through reverse charge, if:
– he makes intrastate purchase from unregistered seller
-the total value of supply received per day is less than or equal to Rs.5,000.
Reverse charge on purchases from unregistered dealers has been discontinued from 13th Oct 2017. It is delayed till 1st July 2018.
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