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Direct and Indirect Taxation · Charge of Tax including Reverse Charge

Reverse Charge Mechanism under Section 9(3) and 9(4)

Updated 10 October 2026 · Fact-checked

Under reverse charge, the recipient pays GST instead of the supplier. Section 9(3) covers notified categories of goods or services. Section 9(4) covers notified supplies received by a notified class of registered persons from an unregistered supplier. To solve: confirm the supply is notified, find the value and rate, compute tax, pay it in cash, then claim credit if eligible.

Understand Reverse Charge Mechanism under Section 9(3) and 9(4)

Normally the supplier charges GST on the invoice and pays it to the Government. This is forward charge. Under reverse charge mechanism (RCM), the liability shifts to the recipient. The recipient pays the tax to the Government directly. The supplier does not charge GST on that supply.

Why does this exist? Some suppliers are hard to tax. They may be small, unregistered or located abroad. Making the registered recipient pay protects revenue.

There are two main routes in the CGST Act, 2017. Section 9(3): the Government, on the Council's recommendation, notifies categories of goods or services on which tax is paid on reverse charge by the recipient. All provisions of the Act apply to the recipient as if he is the person liable to pay the tax. Section 9(4): the Government may notify a class of registered persons who, for specified categories of goods or services received from an unregistered supplier, pay tax on reverse charge as recipient.

The key point is that RCM applies only to what is notified. You cannot assume that every purchase from an unregistered supplier is under RCM. In an exam, the question will name the supply, or give enough facts to match it to a notified entry. Always check the facts given, such as the supplier's status and the recipient's status.

The tax paid under RCM is the recipient's output liability. The recipient may take it as input tax credit only if the conditions of section 16 are met. The input must be used or intended to be used in the course or furtherance of business, and the other section 16 conditions must be satisfied. Under section 16(2), the recipient needs a tax invoice or other prescribed tax paying document, receipt of the goods or services, actual payment of the tax to the Government, and the return furnished under section 39. Credit is not automatic.

The same idea appears in the IGST Act. For online information and database access or retrieval services supplied by a person in a non-taxable territory to a non-taxable online recipient, section 14 of the IGST Act makes the overseas supplier liable. That is a different mechanism from RCM. It also requires a single registration under the Simplified Registration Scheme. Do not mix it up with section 9(3).

Key rules to remember

Section 9(3) rule
Notified goods or services → recipient pays tax (all provisions apply to the recipient as the person liable)
Applies whether the supplier is registered or not, but only for the notified categories.
Section 9(4) rule
Notified class of registered persons + specified goods or services + unregistered supplier → recipient pays tax on reverse charge
All three conditions must be met. Supply by a registered supplier is not covered.
RCM tax liability
Tax payable by recipient = Value of supply (section 15) × notified rate of tax
Rate is notified by the Government. Under section 9(1) it cannot exceed 20% for CGST. Intra-State: split into CGST and SGST/UTGST. Inter-State: IGST.
Input tax credit on RCM
ITC = tax actually paid under RCM, if section 16 conditions are satisfied
Must be used or intended for business use. The tax is paid first, then credit is taken in the return. Credit is not allowed if the supply is otherwise blocked.
Forward charge vs reverse charge
Forward: supplier collects and pays tax. Reverse: recipient pays tax directly to the Government.
Under RCM the supplier's invoice carries no GST on that supply.

How to solve Reverse Charge Mechanism under Section 9(3) and 9(4) questions

Use this order for any RCM question. It stops you from missing a condition or charging tax twice.

  1. 1Identify the supplier and the recipient. Note whether each is registered, and whether the supply is intra-State or inter-State.
  2. 2Check whether the supply falls under a notified category for section 9(3). If yes, RCM applies whatever the supplier's status.
  3. 3If the supplier is unregistered, check section 9(4): is the recipient in the notified class, and is the supply a specified category? If not, RCM does not apply.
  4. 4Determine the value of supply under section 15. Exclude GST itself from the value.
  5. 5Apply the rate given in the question. Compute CGST and SGST for intra-State supply, or IGST for inter-State supply.
  6. 6State that the recipient must pay this tax in cash (electronic cash ledger). Reverse charge tax cannot be paid out of input tax credit.
  7. 7Check section 16 conditions and say whether credit is available. If it is, show the credit and the net payable.
  8. 8Write the final liability clearly under a heading such as Tax payable under reverse charge.

Quickest way: Three-question RCM check

When to use it: Use for MCQs and for the first minute of a numerical question.

  1. Q1: Is the supply on the notified RCM list given in the question? If yes, recipient pays.
  2. Q2: If not, is the supplier unregistered and the recipient in the notified class for a specified supply? If yes, recipient pays under section 9(4).
  3. Q3: If neither, it is forward charge. The supplier pays.
  4. Then compute: value × rate. Pay in cash. Credit later only if section 16 is met.

Common mistakes in Reverse Charge Mechanism under Section 9(3) and 9(4)

  • Treating every purchase from an unregistered supplier as RCM.

    Students remember that unregistered suppliers are linked to RCM and apply it as a blanket rule.

    Fix: Section 9(4) works only for specified supplies, received by a notified class of registered persons. Check the notification given in the question.

  • Paying RCM tax by using input tax credit.

    Students treat RCM like normal output tax, which can be set off against credit.

    Fix: Write that RCM tax must be paid through the electronic cash ledger. Credit arises only after the tax is paid.

  • Taking ITC on RCM without checking section 16.

    Students assume credit is automatic once tax is paid.

    Fix: Check business use, tax invoice or prescribed document, receipt of goods or services, actual payment to the Government and the return under section 39.

  • Adding GST to the supplier's invoice value under RCM.

    The habit of forward-charge invoices carries over.

    Fix: The supplier does not charge GST on that supply. The recipient computes tax on the invoice value and pays it directly.

  • Mixing section 9(3) and 9(4), or confusing RCM with IGST section 14.

    All three shift liability away from the usual supplier.

    Fix: 9(3): notified categories. 9(4): unregistered supplier to notified registered recipient. IGST section 14: overseas supplier of online information and database access or retrieval services to a non-taxable online recipient pays tax.

Worked examples

Example 1

Mehta Traders Pvt Ltd, a registered person in Pune, receives a service from an unregistered supplier. The service is notified for reverse charge under section 9(3). The invoice value is ₹2,00,000 (excluding GST). The total GST rate is 18% (9% CGST + 9% SGST). Compute the tax payable by Mehta Traders and state how it is paid.

Show the solution
  1. The service is notified under section 9(3), so the recipient is liable to pay the tax.
  2. Value of supply = ₹2,00,000.
  3. CGST = 9% × ₹2,00,000 = ₹18,000.
  4. SGST = 9% × ₹2,00,000 = ₹18,000.
  5. Total tax = ₹36,000.
  6. The supplier does not charge GST on the invoice. Mehta Traders pays ₹36,000 in cash through its electronic cash ledger.

Answer: Mehta Traders must pay CGST ₹18,000 and SGST ₹18,000, total ₹36,000, in cash. It may take credit of ₹36,000 later if the section 16 conditions are met.

Example 2

Sharma Enterprises, a registered person, pays reverse charge GST of ₹45,000 (CGST ₹22,500 + SGST ₹22,500) on a notified supply used wholly for its taxable business. It has already paid the tax in cash and filed the return under section 39. Its output tax on forward-charge sales for the month is CGST ₹1,00,000 and SGST ₹1,00,000. Assume it has no other credit. Compute the net CGST and SGST payable in cash for the month.

Show the solution
  1. RCM tax paid in cash = CGST ₹22,500 + SGST ₹22,500. This tax is paid first.
  2. Section 16 conditions are met: business use, tax paid and return furnished. The assumption is that the invoice and receipt conditions are also met. So ITC is available.
  3. ITC from RCM: CGST ₹22,500, SGST ₹22,500.
  4. Net CGST payable on forward-charge sales = ₹1,00,000 − ₹22,500 = ₹77,500.
  5. Net SGST payable = ₹1,00,000 − ₹22,500 = ₹77,500.
  6. Overall cash outflow is the RCM cash ₹45,000 plus ₹1,55,000 on sales = ₹2,00,000. The ITC only reduces the later liability.

Answer: Net cash payable on forward-charge sales: CGST ₹77,500 and SGST ₹77,500, total ₹1,55,000. The RCM tax of ₹45,000 was paid earlier in cash.

Exam tips

  • In MCQs, look for the word notified. RCM applies only to supplies the Government has notified, not to all unregistered purchases.
  • In written answers, name the section: section 9(3) for notified categories, section 9(4) for unregistered suppliers to a notified class of registered recipients.
  • Always show the cash payment step. Marks are given for stating that RCM tax is paid in cash and ITC is claimed afterwards.
  • Write one line on section 16 conditions whenever you claim credit. It shows the examiner you know credit is conditional.
  • If the question mentions an overseas supplier of online information or database access to a non-taxable online recipient, think of IGST section 14, not section 9(3).

Practice questions from Charge of Tax including Reverse Charge

Reverse Charge Mechanism under Section 9(3) and 9(4) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Reverse Charge Mechanism under Section 9(3) and 9(4): frequently asked questions

What is the difference between forward charge and reverse charge?

Under forward charge, the supplier collects GST from the buyer and pays it to the Government. Under reverse charge, the recipient pays the tax directly to the Government, and the supplier does not charge GST on that supply. Reverse charge applies only to notified supplies.

Does section 9(4) apply to all purchases from unregistered suppliers?

No. Section 9(4) lets the Government notify a class of registered persons who pay tax on reverse charge for specified categories of goods or services received from an unregistered supplier. If the recipient is not in the notified class, or the supply is not specified, it does not apply.

Can I use input tax credit to pay reverse charge tax?

No. You must pay RCM tax in cash through the electronic cash ledger. After paying, you may claim input tax credit on it, if the section 16 conditions are met.

How do I calculate GST liability under reverse charge?

Take the value of supply under section 15, apply the notified rate, and split into CGST and SGST for an intra-State supply or IGST for an inter-State supply. Pay it in cash. Then claim credit if eligible.