Reverse charge
What Reverse charge means, how it works, a worked example, the mistakes we see and the questions founders ask.
DefinitionReverse charge is the GST rule under which the buyer, not the seller, must pay the tax on certain purchases, such as services from a lawyer, a goods transport agency or an overseas supplier.
Normally the seller collects GST and deposits it. Under reverse charge the liability flips to the registered buyer for notified categories: legal services from an advocate, goods transport agency services, sponsorship, services of a director to their company, and any service imported from outside India, including software subscriptions and overseas contractors. The buyer pays the tax in cash through GSTR-3B, cannot use input credit to settle it, and can then claim that same amount as credit in the following return if the purchase is for business. You meet it the first time you pay a foreign SaaS invoice or hire a lawyer after registering for GST. What it means for you: track these purchases separately, because missed reverse charge is one of the most common findings in a GST audit, and interest at 18% runs from the original due date.
How Reverse charge works
Ordinarily the supplier charges GST and pays it to the government. Under reverse charge the recipient pays the tax directly, in cash, and may then claim it as input credit if otherwise eligible. Section 9(3) lists the supplies where this always applies: goods transport agency services, legal services from an advocate, services of an arbitrator, sponsorship, services of a director to the company, security services from a non-corporate supplier to a company, renting of a motor vehicle by a non-corporate supplier to a company, renting of commercial property by an unregistered person to a registered one, and import of services from abroad, among others.
Section 9(4) applies reverse charge to purchases from unregistered suppliers only in notified cases, chiefly promoters and builders buying cement, capital goods and inputs beyond the 80% registered-purchase threshold. The general rule that all unregistered purchases attract reverse charge was withdrawn in 2019.
Reverse charge tax cannot be paid with credit; it goes out of the cash ledger in the GSTR-3B of the month, and the recipient issues a self-invoice within 30 days where the supplier is unregistered. The amount is then available as credit in the same return, so for a fully taxable business the net cost is timing, not tax.
A Bengaluru company engages a transporter who issues a consignment note for ₹2 lakh of freight, pays an advocate ₹50,000 for a contract review, and subscribes to a US software service for ₹1 lakh a month. All three attract reverse charge. In its September GSTR-3B it pays ₹10,000, ₹9,000 and ₹18,000 respectively from its cash ledger and claims the same amounts as credit in the same return. The transporter's and the advocate's invoices carry no GST.
Mistakes we see with Reverse charge
- Paying the advocate's or transporter's bill and forgetting that the tax is the company's to pay, which surfaces at audit with interest.
- Trying to pay reverse charge from the credit ledger, which the portal does not allow.
- Treating every unregistered purchase as reverse charge, as the 2017 rule briefly required, and overpaying tax that was never due.
Last updated 19 October 2026. Checked against the MCA, GST, Income-tax and Trade Marks rules in force for October 2026.
Where you will meet this term
Questions founders ask about Reverse charge
Which services commonly attract reverse charge for a company?
Goods transport agency freight, advocate's fees, director's services other than salary, security services from a non-corporate agency, hired cars from a non-corporate supplier, commercial rent from an unregistered landlord, sponsorship, and any service imported from abroad, including software subscriptions.
Can I claim input credit on reverse charge tax?
Yes, in the same GSTR-3B in which you pay it, provided the service is used for business and not blocked under Section 17(5). The tax itself must be paid in cash.
Does reverse charge apply to purchases from unregistered suppliers?
Only in the notified cases, mainly builders and promoters buying specified inputs, and for the listed services such as a transport agency or an unregistered landlord of commercial property. The blanket rule was withdrawn in 2019.