February 9, 2023
Shreeja Ray

GST Invoicing for Reverse Charge Mechanism: How it Works

When the recipient of the products assumes responsibility for tax payment, the GST reverse charge system is put into effect. Normally, the provider of goods and services is responsible for paying the Goods and Services Tax (GST).

Understanding the reverse charge mechanism can assist businesses and individual customers understand their transactions more thoroughly. The government has outlined a few situations in which it is used.

Examining the reverse charge mechanism, when it is used, and what self-invoicing is will help.

Reverse Charge Mechanism for a person who is not registered

1. The buyer is responsible for paying the GST on a reverse charge basis for any supplies of goods, services, or both made by an unregistered supplier to a registered person (buyer). Such a buyer shall be subject to the terms of the GST Act in the same manner as if he were the supplier of the goods or services, or both, who was responsible for paying the tax.

2. Consider that you are the owner of a tiny paper business that is GST-registered. However, one of your suppliers of glossy paper for your business is not GST-registered. The reverse charge is applicable in this instance. Here, the paper firm is obligated to cover the GST instead of the glossy paper vendor.

Reverse Charge Mechanism for services purchased through an online store

1. The reverse fee becomes applicable to the e-commerce operator if the website offers any services. For instance, if you use a brand that lists service providers, like beauticians, you will be required to pay the GST on the bill rather than the providers paying the brand directly.

2. Mechanism for reverse charging in relation to the supply of particular commodities listed by CBIC.

3. The reverse fee is applicable if you provide specific commodities that have been listed out by the Central Board of Indirect Taxes & Customs (CBIC). Cashew nuts, betel leaves, silk yarn, tobacco leaves, and other items are a few of these products.

Using the Reverse Charge Mechanism for Invoicing

1. When receiving products or services from the provider, the recipient or buyer issues an invoice under the reverse charge process. Additionally, when paying the provider, they must issue a payment voucher.

2. If the total cost of the supply exceeds INR 5,000 in a day, a registered recipient or the buyer may submit a consolidated invoice at the end of the month.

GST payment method under the Reverse Charge Mechanism

The person providing the goods is required by GST law to indicate on the tax invoice whether tax is due using the reverse charge procedure.

Here are some things to keep in mind while paying your GST by reverse charge:

1. A recipient of services may only claim an ITC on the tax amount paid under the reverse charge on goods and services if the items or services are utilized for commercial purposes.

2. A composition dealer who is subject to reverse charge is not qualified to receive any tax reimbursement. Additionally, the dealer must pay tax at the standard rates rather than the composition rates.

3. GST compensation cess will be applicable to the tax payable or paid under the reverse charge mechanism.


1. With an example, define a reverse charge mechanism.

GST-registered individuals pay INR 10,000 for the services of the Goods Transport Agency (GTA). Due to the fact that this service is included in the list of reverse charges, the user must pay an 18% tax on INR 10,000 via the reverse charge mechanism (RCM).

2. How is RCM determined?

RCM computation is not constant. For a lengthy list of supplies of items covered by RCM, it varies.

3. Where can reverse charge be used?

RCM is applicable under Section 9(4) of the CGST Act if a person who has not registered for GST supplies goods and services to a person who has registered for GST.

Instead of the supplier, the receiver must pay the GST amount directly.

4. How much GST is there under RCM?

Based on the admissibility of Input Tax Credit (ITC) by service provider, the Goods Transport Agency, a GST rate of 5% or 12% is applicable (GTA).

5. What does the reverse charge serve?

When a supplier of specific goods or services is located in non-taxable areas or is not familiar with the tax regulations, the reverse charge mechanism is used to easily and conveniently collect indirect tax from the recipient and to enhance tax revenues more effectively.


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