Direct and Indirect Taxation · Levy and Collection of CGST and IGST

Reverse Charge Mechanism under GST Explained

Updated 10 October 2026 · Fact-checked

Under reverse charge, the recipient, not the supplier, pays GST on a supply. Section 9(3) CGST covers categories of goods or services the Government notifies. Section 9(4) covers notified supplies received by notified registered persons from unregistered suppliers. To solve, check the notification, identify the recipient, compute tax on the value, and pay it in cash.

Understand Reverse Charge Mechanism

Normally the supplier charges GST on the invoice and pays it to the Government. Under the reverse charge mechanism (RCM), this flips. The recipient becomes the person liable to pay the tax, and the law applies to the recipient as if he were the supplier for that supply.

The power comes from section 9 of the CGST Act. Section 9(3) lets the Government, on the Council's recommendation, notify categories of goods or services on which tax is paid by the recipient. Section 9(4) lets the Government notify a class of registered persons who must pay tax on reverse charge for specified categories of goods or services received from an unregistered supplier.

Why does this exist? Some suppliers are hard to tax: they are small, unregistered or unorganised. Collecting tax from the registered business buying from them is easier and protects revenue.

RCM applies only to what is notified. You cannot assume it. In the exam, the question will usually tell you the nature of the supply and the status of the supplier and recipient. Your job is to check whether the supply is a notified category and who the notified recipient is.

The recipient pays this tax in cash through the electronic cash ledger. The same tax can then be claimed as input tax credit by the recipient, subject to the conditions of section 16, if the supply is used in the course or furtherance of business. Note that the second proviso to section 16(2) (the 180-day payment rule) does not apply to supplies on which tax is payable on reverse charge.

A related rule: section 9(5) makes an e-commerce operator pay tax on notified services supplied through it, as if it were the supplier. This is a separate power from section 9(3) and 9(4), though it works in a similar way.

Key rules to remember

Section 9(3) rule: Notified goods or services → tax payable by the recipient; Applies whether the supplier is registered or not, as the notification specifies. The recipient is treated as the person liable to pay tax.
Section 9(4) rule: Notified class of registered recipient + specified goods or services + unregistered supplier → recipient pays tax; All three conditions must hold. Supply from a registered supplier does not fall under this sub-section.
RCM tax computation: Tax = Value of supply (section 15) × notified rate; Intra-State: CGST + SGST/UTGST. Inter-State: IGST. No tax is charged by the supplier on the invoice.
Input tax credit on RCM: ITC = tax paid under RCM, if section 16 conditions are met; Tax must actually be paid first, in cash. Credit can be taken only after payment, and only if the supply is for business.
Section 9(5) rule: Notified services supplied through an e-commerce operator → operator pays tax; Separate from RCM under 9(3) and 9(4). The operator is treated as the supplier.

How to solve Reverse Charge Mechanism questions

Use this order for any RCM question. It stops you from charging tax in the wrong hands.

1Identify the supply: goods or services, and what exactly is supplied.
2Check whether it is a notified category under section 9(3). If the question gives a list, match it. If not, say the category is as notified.
3If the supplier is unregistered, check section 9(4): is the recipient a notified class of registered person and is the supply a specified one?
4Fix who pays: the recipient. State that the supplier charges no GST on the invoice.
5Find the value of supply under section 15 and apply the rate given. Split into CGST and SGST for intra-State, or IGST for inter-State.
6Note that payment is in cash, not through the credit ledger.
7State the ITC position: credit is available after payment if section 16 conditions are met and the supply is for business.
8Write a one-line conclusion with the final tax payable and by whom.

Quickest way: Three-question RCM check

When to use it: Use it for MCQs and short numericals where time is tight.

Is the supply notified for RCM, or is it from an unregistered supplier to a notified recipient? If no, normal charge applies.
If yes, the recipient pays. Multiply value by the given rate.
Pay in cash. Credit may be claimed afterwards if eligible, so net cost is nil for a fully eligible business user.

Common mistakes in Reverse Charge Mechanism

Assuming every purchase from an unregistered person attracts RCM.
Students remember 'unregistered supplier' and stop there.
Fix: Section 9(4) works only for a notified class of registered persons and specified goods or services. Check all conditions.
Charging GST on the supplier's invoice and also paying RCM.
Mixing up normal and reverse charge flows.
Fix: Under RCM the supplier does not charge tax. Only the recipient pays.
Paying RCM tax by using input tax credit.
Students treat RCM like normal output tax.
Fix: Pay it in cash. Credit arises only after payment.
Claiming ITC on RCM before paying the tax.
Forgetting that section 16(2)(c) requires tax actually paid to the Government.
Fix: Show payment first, then credit, subject to section 16.
Applying the 180-day payment rule to RCM supplies.
Memorising the proviso without its exception.
Fix: The second proviso to section 16(2) excludes supplies on which tax is payable on reverse charge.
Mixing section 9(5) e-commerce liability with RCM.
Both shift liability from the supplier.
Fix: Section 9(3) and 9(4) shift it to the recipient. Section 9(5) shifts it to the e-commerce operator, who is treated as the supplier.

Worked examples

Example 1

Sharma Traders, a registered person in Jaipur, receives a notified service under RCM from an unregistered supplier in Jaipur. The value is ₹1,00,000. Assume combined GST of 18% (CGST 9% and SGST 9%). Compute the tax payable by Sharma Traders and explain the credit position, assuming the service is used for business.

Show the solution

The supply is intra-State and notified for reverse charge, so the recipient is liable under section 9(3).
Value of supply = ₹1,00,000.
CGST = 9% × ₹1,00,000 = ₹9,000.
SGST = 9% × ₹1,00,000 = ₹9,000.
Total tax = ₹18,000, payable by Sharma Traders in cash.
After payment, Sharma Traders may take ₹18,000 as input tax credit, subject to section 16 conditions, as the service is used in business.

Answer: Sharma Traders pays ₹18,000 (CGST ₹9,000 and SGST ₹9,000) in cash and can claim the same as ITC if section 16 conditions are met.

Example 2

Mehta Industries (registered) buys goods worth ₹2,50,000 from an unregistered supplier. The supply is not a notified category under section 9(3), and Mehta is not in a class notified under section 9(4) for these goods. Is reverse charge applicable? Who pays tax?

Show the solution

RCM applies only to notified supplies, so check section 9(3) first. The goods are not notified.
Check section 9(4). It needs a notified class of registered recipient and specified goods or services from an unregistered supplier. Mehta is not in a notified class for these goods.
Neither sub-section applies, so RCM is not triggered.
Normal rules apply: tax, if any, is the supplier's liability under section 9(1), and an unregistered supplier cannot collect tax in the normal way.
Mehta cannot take ITC, as it has no tax invoice from a registered supplier as required by section 16(2)(a).

Answer: Reverse charge does not apply. No RCM tax is payable by Mehta and no ITC arises, because the notification conditions are not met.

Exam tips

Always state the sub-section: 9(3) for notified supplies, 9(4) for notified recipients buying from unregistered suppliers.
In numericals, show the split into CGST, SGST or IGST, and say 'paid in cash'.
Expect MCQs on who pays tax, whether ITC is available, and whether the 180-day rule applies. Remember the exclusion for RCM supplies.
Do not quote a notification number or a list of services unless the question gives it. Say 'as notified' and use the data given.
For written answers, write a short definition first, then the conditions, then the computation. This earns step marks.

Practice questions from Levy and Collection of CGST and IGST

Reverse Charge Mechanism 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: frequently asked questions

What is reverse charge under section 9(3) of the CGST Act?

It lets the Government notify categories of goods or services on which the recipient pays tax instead of the supplier. All CGST provisions then apply to the recipient as if he were the person liable to pay tax for that supply.

How is section 9(4) different from section 9(3)?

Section 9(3) is about notified categories of supply. Section 9(4) is about a notified class of registered persons receiving specified goods or services from an unregistered supplier. Both make the recipient liable.

Can I claim input tax credit on tax paid under reverse charge?

Yes, if the supply is used in the course or furtherance of your business and the section 16 conditions are met. You must have paid the tax to the Government first.

Do I need a list of RCM services for the exam?

Learn the principle and the examples used in your study material. Questions usually state the nature of the supply, so the key skill is applying the rule and computing tax correctly.