What it means
Normally the supplier charges GST and pays it. For a list of goods and services notified by the government, the recipient pays instead. Common cases for a small business: freight from a goods transport agency that has not opted to charge tax itself, legal services from an advocate, services from a director, and sponsorship. The recipient pays this tax in cash and can then claim it back as input tax credit, if the purchase is for business.
Example
Kaveri Agencies, Mysuru pays a transporter ₹20,000 freight. The transporter works under reverse charge at 5%.
| Step | Amount |
|---|---|
| Freight bill (no GST charged) | ₹20,000 |
| GST Kaveri pays in cash (2.5% CGST + 2.5% SGST) | ₹1,000 |
| Input tax credit Kaveri claims the same month | ₹1,000 |
The net cost is nil, but the cash payment cannot be skipped: credit cannot pay a reverse-charge liability.
Common mistakes
- Paying reverse-charge tax from the credit ledger. It must be paid in cash.
- Missing reverse charge on director fees or legal fees because no GST appears on the bill.
- The supplier charging GST on the invoice as well, so tax is paid twice.
In MyRecords
MyRecords marks reverse-charge documents and reports them in the right GSTR-1 and GSTR-3B tables. On a sales invoice under reverse charge it shows and reports the tax but does not charge it. This area is partly built; the reverse charge page says exactly what works today.