Reverse Charge under GST: What Every Recipient Must Know for FY 2026-27

What Is the Reverse Charge Mechanism (RCM) under GST?

Typically in GST, the supplier of goods or services collects and pays the tax to the government. The Reverse Charge Mechanism (RCM) flips this in notified cases: the responsibility to pay GST shifts from the supplier to the recipient. This matters most for business recipients of certain goods and services, and in some cases, when buying from unregistered suppliers.

Legal Basis: Which Transactions Fall under RCM?

There are two principal triggers:

1. Notified Goods or Services (Section 9(3) of CGST Act & Section 5(3) IGST Act): The government has a list of goods and services (such as legal services, goods transport agency services, cashew nuts, silk yarn, etc.) where the recipient must pay GST, even if the supplier is registered.
2. Purchases from Unregistered Suppliers (Section 9(4) of CGST Act): For certain notified categories of registered persons, buying specified goods or services from an unregistered supplier also triggers RCM. As of now, this section applies only to supplies to specific notified classes—not to all registered persons as in the early days of GST.

Who is Affected?

• Registered businesses (recipients) dealing in notified goods/services.
• Specified classes of registered persons procuring from unregistered suppliers.
• TDS deductors registered under Section 51 are not liable under Section 9(4).

GST Registration and Payment Requirements under RCM

• No Threshold Exemption: If you are liable for GST under RCM, you cannot claim the registration exemption threshold (normally ₹20 lakhs or ₹10 lakhs for special category states). You must register even if your turnover is below the threshold.
• Compulsory Registration: Any person required to pay GST under RCM must obtain GST registration.
• RCM GST Liability Cannot Be Offset by ITC: Tax under RCM must be paid in cash via the Electronic Cash Ledger. It cannot be set off using your Input Tax Credit (ITC) balance.

How and When to Pay GST under RCM?

The timing—known as the 'time of supply'—is important, as interest and penalties apply for delay.

Time of Supply Rules

For Goods:

• Earliest of these:

1. Date of receipt of goods

2. Date of payment as recorded in the books or as debited from bank

3. 30 days from the supplier’s invoice date

For Services:

• Earliest of these:

1. Date of payment as per books or bank

2. 60 days from the supplier’s invoice date

Example (Goods under RCM):

• 30 days from invoice: 4 August 2026
• Earliest: 15 July 2026 (goods received)

Time of supply for RCM: 15 July 2026.

Input Tax Credit (ITC) for RCM Payments

The recipient paying GST under RCM is allowed to claim Input Tax Credit on that payment—provided the underlying goods or services are used for business, other ITC conditions are met, and the tax has actually been paid to the government.

• Crucial: You can only take ITC after actually paying GST in cash under RCM via the Electronic Cash Ledger.

Compliance: Documentation and Disclosure

• All invoices for supplies received under RCM must clearly specify that the supply is subject to GST under Reverse Charge.
• Maintain proper records showing RCM payments and ITC claims.

What Should GST Recipients Do for FY 2026-27?

1. Review Procurements: Check if any goods/services you buy are in the RCM list, or if you are notified for Section 9(4) RCM on purchases from unregistered suppliers.
2. Track Receipt and Payment Dates: To determine the correct time of supply and avoid interest on late payment.
3. Pay RCM Taxes in Cash: Do not rely on your ITC balance for RCM—arrange for cash payment.
4. Claim ITC Carefully: Only after RCM taxes are paid.
5. Ensure Accurate Invoices: Insist suppliers mention RCM on invoices, and maintain records for GST audit.