Context
Most small businesses think GST flows one way: the supplier charges the tax, you pay the supplier, the supplier pays the government. **Reverse charge (RCM)** flips that for certain supplies, the buyer pays the GST straight to the government. The flow above answers the only question that matters at the desk: does RCM apply to *this* purchase, and if so, what do I have to do?
The first test is the **Section 9(3) notified list**. Section 9(3) of the CGST Act, read with Notification 13/2017-Central Tax (Rate), fixes a list of supplies where the recipient always pays: goods transport agency (GTA) freight, legal services by an advocate, sponsorship, a director's services to the company, an insurance agent, and a recovery agent, among others. If your purchase is on that list, you pay RCM **whether or not the supplier is GST-registered**. A small business that hires a transporter or a lawyer is squarely caught, this is not a big-company-only rule.
The second test, **Section 9(4)**, is far narrower than its reputation. It once required any registered buyer to pay RCM on purchases from unregistered suppliers, but that omnibus version was suspended; today it is notified only for specific recipients, principally a **real-estate promoter** who buys below the prescribed registered-procurement threshold under Notification 07/2019-CT(R). For an ordinary small business, buying from an unregistered supplier does **not** by itself create an RCM liability. Treating 9(4) as a general rule is the most common over-correction, so the flow keeps it on its own narrow branch.
Where RCM applies, four rules bite. You **pay in cash** through the electronic cash ledger, Section 49(4) does not let you use input tax credit to discharge it. You **self-invoice** an unregistered supplier under Section 31(3)(f), since they issue no invoice. You may then **claim the RCM as input tax credit**, but only if the supply is otherwise eligible. And a **composition dealer** is not spared: composition covers outward sales, the inward RCM liability remains, and worse, a composition dealer can claim no credit on the RCM paid, so for them it is a pure cost.
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Falcon, "Does GST reverse charge apply to your purchase? The small-business decision flow", https://hrareceipt.in/atlas/reverse-charge-rcm-smb-decision-flow, accessed 2026-06-17.Licensed under CC-BY-4.0. Reuse the visual, data, or context freely with attribution back to the source URL — see /atlas/license.
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<iframe src="https://hrareceipt.in/atlas/reverse-charge-rcm-smb-decision-flow" width="640" height="480" frameborder="0" loading="lazy" title="Does GST reverse charge apply to your purchase? The small-business decision flow"></iframe>Image (visual only, links back to source)
<a href="https://hrareceipt.in/atlas/reverse-charge-rcm-smb-decision-flow"><img src="https://hrareceipt.in/atlas/reverse-charge-rcm-smb-decision-flow.svg" alt="Decision flow for whether a small or medium GST-registered business must pay GST under reverse charge. First test: is the supply on the Section 9(3) notified list, such as a goods transport agency, advocate or legal services, sponsorship, a director's services to the company, an insurance agent, or a recovery agent? If yes, the recipient pays GST under reverse charge regardless of whether the supplier is registered. Second test, only for the narrow Section 9(4) cases: are you a notified recipient such as a real-estate promoter buying from an unregistered supplier? If yes, reverse charge applies on that notified procurement. Otherwise the supplier charges GST in the ordinary way, called forward charge. Where reverse charge applies, the recipient pays the tax in cash through the electronic cash ledger and not from input tax credit, must issue a self-invoice under Section 31(3)(f) when the supplier is unregistered, can claim input tax credit on the RCM paid only if it is otherwise eligible, and a composition dealer is liable for reverse charge but cannot claim any input tax credit on it." /></a>