GST Reverse Charge Mechanism: A Practitioner’s Checklist

Under reverse charge, the recipient rather than the supplier discharges GST. It applies to notified categories of supply, to specified supplies from unregistered persons, and to import of services. Liability must be paid in cash and cannot be set off against input tax credit — the most commonly missed point.

Where reverse charge applies

Three distinct bases: notified categories of goods and services regardless of supplier registration status; specified supplies received from unregistered suppliers; and import of services.

Categories that recur in practice include goods transport agency services, legal services from advocates and firms of advocates, director services provided to a company, sponsorship, and services from a government body.

Import of services is the most consistently missed. Foreign software subscriptions, cloud services, overseas professional fees and intra-group service charges from a foreign parent all commonly attract reverse charge — and are commonly overlooked because there is no Indian supplier raising an invoice.

The cash payment rule

Reverse charge liability must be discharged in cash. It cannot be offset against available input tax credit. Businesses sitting on a large credit balance frequently assume otherwise and under-pay.

Credit of the tax so paid is then available, subject to the normal conditions, in the period in which it is paid. The result is a cash flow cost even where the position is ultimately credit-neutral.

Recurring errors

Missing reverse charge on import of services, particularly recurring software and intra-group charges. Offsetting the liability against credit instead of paying in cash. Getting the time of supply wrong, since reverse charge follows its own rules and the recipient must self-generate the accounting entry. Missing the self-invoicing obligation where it applies: this arises where a notified reverse charge supply is received from an unregistered supplier, not on every purchase from an unregistered person, and Rule 47A requires the self-invoice within 30 days of receiving the supply. And claiming credit in the wrong period relative to payment.

A working checklist

Maintain a standing list of recurring reverse charge exposures — every foreign vendor, advocate, GTA and director payment — and review it quarterly rather than transaction by transaction.

Reconcile foreign currency outflows against reverse charge discharged. Any remittance for services that did not generate a reverse charge entry needs an explanation.

Confirm cash discharge separately from credit utilisation each period. Where you receive a notified reverse charge supply from an unregistered supplier, check the self-invoice was raised within the 30-day window under Rule 47A.

Related reading

• input tax credit conditions — GST Input Tax Credit: Conditions, Blocked Credits and Disputes
• OIDAR and cross-border digital services — GST on Cross-Border Digital Services: How OIDAR Works
• current GST rates — New GST Slabs 2026: 5%, 18% and 40% Explained

Sources

• Section 9(3)/9(4) and Rule 47A, CGST Act and Rules — cbic.gov.in