GST Reverse Charge: When Does a Small Business Pay GST for Its Supplier?

Normally the supplier adds GST to the invoice, collects it from you, and pays it to the government. That is called forward charge. Reverse charge moves that duty to you, the recipient. You compute the GST, pay it, and report it in your own returns.

• →Forward charge: supplier charges GST on the invoice, you pay the supplier, the supplier pays the government.
• →Reverse charge (RCM): the supplier does not charge GST; you pay it to the government yourself and report it in GSTR-3B.
• →Why it matters: missing an RCM liability is your default, not the supplier's. The tax, interest, and penalty land on you, the buyer.

There are two legs to RCM. Section 9(3) is a fixed list of notified goods and services where the buyer always pays. Section 9(4) is a narrow set of cases where a notified buyer purchases from an unregistered supplier. Most small businesses meet RCM through the Section 9(3) list.

• →Section 9(3): a notified list under Notification 13/2017-Central Tax (Rate). If your purchase is on it, you pay RCM regardless of the supplier being registered or not.
• →Section 9(4): once an omnibus rule, now suspended for general purchases and notified only for specific recipients, mainly a real-estate promoter buying from an unregistered supplier under Notification 07/2019-CT(R). Do not assume every purchase from an unregistered seller triggers RCM; for most buyers it does not.
• →A composition dealer is not exempt. Composition covers your outward sales; it does not switch off your inward RCM liability.
• →Why it matters: you can be fully compliant on your sales and still owe RCM on a freight bill or a lawyer's fee you never thought of as a GST event.

• →Pay in cash: RCM cannot be set off with existing input tax credit. It must be paid from the electronic cash ledger, so it is a real cash outflow in the month of liability.
• →Then claim it back: once paid, the RCM amount becomes input tax credit you can claim under Section 16, but only if the supply is otherwise eligible for credit and not blocked under Section 17.
• →Self-invoice the unregistered supplier: Section 31(3)(f) requires you to raise your own invoice for an RCM purchase from an unregistered person, because the supplier issues none. That self-invoice is the document supporting your credit.
• →The composition trap: a composition dealer still pays RCM, but cannot take any input tax credit on it. For them RCM is a pure cost, never recoverable.

• →The default sits with you: because the law puts the duty on the recipient, a GST officer raises the demand on the buyer, not on the supplier who never charged the tax.
• →Interest and penalty: unpaid RCM carries interest under Section 50 from the due date, and a separate penalty for the short payment, even if you later pay the tax.
• →Lost or delayed credit: if you never self-invoiced and never paid the RCM, you also never earned the input tax credit, so the cost compounds, the cash you should have recovered stays unrecovered.
• →A clean trail helps: a pakka bill or self-invoice carrying every required field, plus a record of the RCM paid, is what an officer expects to see at audit. For the field anatomy, see what fields a GST tax invoice must carry, and for the document type, pakka bill vs kaccha bill.