Reverse charge: when the buyer pays the GST.

Forward charge and reverse charge

Under the normal system, the forward charge, the supplier adds GST to the invoice, collects it from you and pays it to the government. Under reverse charge, the supplier does not collect the tax: you, the buyer, work it out and pay it yourself. It applies only where the law says so.

When it applies

There are three broad cases:

• Goods and services notified by the government. For example, goods transport by a goods transport agency in many cases, legal services from an advocate to a business, sponsorship services to a company or firm, and services a director provides to their company.
• Services imported from outside India, where the Indian buyer pays the IGST.
• Some purchases from unregistered suppliers, in the cases the government has notified.

The notified lists change from time to time, and several entries have conditions attached. Whether a particular purchase is covered is worth checking with your CA.

What you do as the buyer

• Pay the tax in cash. Tax due under reverse charge cannot be paid out of your input tax credit; it is paid through the cash ledger on the GST portal.
• Claim it back as credit, where the purchase is for your business and credit on it is allowed, once the tax is paid.
• Keep the paperwork. When the supplier is unregistered, you issue the invoice for the purchase yourself (a self-invoice) and a payment voucher when you pay.
• Be registered. A business that has to pay tax under reverse charge must register for GST, whatever its turnover.

How it shows in GSTR-3B

Reverse charge appears twice, and the two cancel out in the net:

• as tax you owe, in table 3.1(d), inward supplies liable to reverse charge;
• as input tax credit, in table 4(A)(3), inward supplies liable to reverse charge.

Reporting only the credit understates what you owe, and because the tax has to be paid in cash, the two sides are not simply netted off when you pay. The ordinary credit on your other purchases is reported separately, in 4(A)(5).

When your own sale is under reverse charge

If you supply something your customer pays reverse charge on, your invoice has to say that tax is payable on reverse charge, and your customer pays that tax to the government rather than to you. In GSTR-1 the invoice is flagged as a reverse-charge supply. How the tax is shown on such an invoice is worth agreeing with your CA.

How PlusGST records it

On a purchase bill, tick Reverse charge. The bill is marked in your purchases list, and its tax goes into your GSTR-3B file on both sides: as tax you owe in 3.1(d) and as credit in 4(A)(3), never in the line for other credit.

One gap to know about: a bill from a foreign supplier, in foreign currency, cannot be marked reverse charge in PlusGST today, so the IGST you pay on services imported from outside India is not in the file. Work that in with your CA.

On a sales invoice you can mark reverse charge too. Every template prints the Reverse Charge line, Yes or No, and the invoice is flagged in your GSTR-1 file. PlusGST works out and reports these figures; paying the tax in cash happens on the GST portal. More on the purchases page and the GST reports page.

A note on this guide

This is general information to help you understand your own records, not tax advice. The lists of goods and services under reverse charge, and the conditions on them, are changed by notification from time to time. Check anything that matters with your CA.

Next: credit and debit notes, plainly, what GSTR-1 and GSTR-3B are, or all guides and tools.