{"id":67509,"date":"2025-02-21T14:34:21","date_gmt":"2025-02-21T09:04:21","guid":{"rendered":"https:\/\/piceapp.com\/blogs\/?p=67509"},"modified":"2025-02-21T14:34:24","modified_gmt":"2025-02-21T09:04:24","slug":"supply-to-unregistered-person-under-gst","status":"publish","type":"post","link":"https:\/\/piceapp.com\/blogs\/supply-to-unregistered-person-under-gst\/","title":{"rendered":"Reverse Charge Mechanism: Supply to Unregistered Person Under GST"},"content":{"rendered":"\n<div class=\"wp-block-group has-background\" style=\"background-color:#f2f5f9\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<h3 class=\"wp-block-heading\"><strong>Key Takeaways<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>RCM shifts GST liability from suppliers to recipients.<\/li>\n\n\n\n<li>Registered buyers must pay GST on purchases from unregistered suppliers.<\/li>\n\n\n\n<li>Time of supply under RCM depends on payment, invoice, or receipt date.<\/li>\n\n\n\n<li>Recipients can claim ITC on GST paid under RCM for business use.<\/li>\n\n\n\n<li>Self-invoicing is required for RCM transactions with unregistered suppliers.<\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n<p>The Reverse Charge Mechanism (RCM) under the Goods and Services Tax (GST) is a unique provision that transfers the tax liability from the supplier of goods or services to their recipient. Instead of the supplier collecting and depositing the tax as in the usual way of taxation, RCM ensures business compliance and direct tax compliance indirectly through a mechanism of unregistered suppliers, importations, goods, or supply between interstate goods, thus addressing <a href=\"https:\/\/www.chargebee.com\/blog\/revenue-leakage\/#:~:text=Revenue%20leakage%20is%20the%20amount,of%20awareness%20within%20a%20business.\" target=\"_blank\" rel=\"noopener\">revenue leakage<\/a> and improving tax administration.<\/p>\n\n\n\n<p>In this blog, we will walk you through a guide on how RCM is applicable to supply to unregistered person under GST.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Is Reverse Charge Mechanism?<\/strong><\/h2>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"900\" height=\"506\" src=\"https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/What-Is-Reverse-Charge-Mechanism.png\" alt=\"What Is Reverse Charge Mechanism?\" class=\"wp-image-67671\" title=\"\" srcset=\"https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/What-Is-Reverse-Charge-Mechanism.png 900w, https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/What-Is-Reverse-Charge-Mechanism-300x169.png 300w, https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/What-Is-Reverse-Charge-Mechanism-150x84.png 150w, https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/What-Is-Reverse-Charge-Mechanism-768x432.png 768w\" sizes=\"auto, (max-width: 900px) 100vw, 900px\" \/><figcaption><\/figcaption><\/figure>\n\n\n\n<p>Reverse Charge Mechanism (RCM) under GST is a situation where the liability of paying taxes for the supply of goods and services shifts from suppliers to recipients, particularly in cases that involve purchases from any unregistered persons. <\/p>\n\n\n\n<p>The main aim of this mechanism is to broaden the collection of taxes, especially in unorganized sectors and even consider the imports of services. There are only certain types of <a href=\"https:\/\/www.nerdwallet.com\/article\/small-business\/business-entity\" target=\"_blank\" rel=\"noopener\">business entities<\/a> following the reverse charge mechanism.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>When Is Reverse Charge Applicable?<\/strong><\/h2>\n\n\n\n<p>Reverse Charge applies well for both goods and services. Under GST, the three different kinds of reverse charge scenarios are as follows:<\/p>\n\n\n\n<p><strong>A. Supply Nature<\/strong><\/p>\n\n\n\n<p>The reverse charge mechanism applies well to the nature of goods and services applicable as per the notification under CBIC covered under RCM. This scenario is specifically covered under Section 9(3) of the CGST\/SGST (UTGST) Act along with Section 5(3) of the IGST Act.<\/p>\n\n\n\n<p><strong>B. Supply from Unregistered Individuals to Registered Individual<\/strong><\/p>\n\n\n\n<p>Following Section 9(4) of the CGST\/SGST Act and Section 5(4) of the IGST Act, if any registered person buys goods and services from any unregistered dealer, the registered taxpayer is then liable to pay GST on a reverse charge basis. The provisions of the Act apply to the recipient as if the person is liable to pay taxes for the supply of goods and services.<\/p>\n\n\n\n<p>This is applicable only under certain conditions:<\/p>\n\n\n\n<p>i.&nbsp;Supply should be by an unregistered person<\/p>\n\n\n\n<p>ii.&nbsp;Supply must be related to payment of tax on supply of goods and services<\/p>\n\n\n\n<p>iii.&nbsp;Supply must be to any registered supplier<\/p>\n\n\n\n<p>iv.&nbsp;Supply should be intra-state supply as there is the necessity of compulsory registration for inter-state sales<\/p>\n\n\n\n<p><strong>C<\/strong>. <strong>Supply of Services Through an e-commerce<\/strong><\/p>\n\n\n\n<p>An e-commerce transactions platform providing a <a href=\"https:\/\/www.schrack-seconet.com\/blog\/blog-posts\/service-platform-the-digital-convenience-service\/\" target=\"_blank\" rel=\"noopener\">convenient platform<\/a> to both buyers and sellers for paying GST on behalf of suppliers. However, if there is an absence of physical presence of an e-commerce operator in the taxable territory, then an individual who has taken the responsibility of representing such an operator will take the liability of paying taxes. If a representative is absent, the e-commerce operator appoints a representative who will be responsible for paying GST.<\/p>\n\n\n\n<p><strong>D.<\/strong> <strong>Time of Supply Under RCM<\/strong><\/p>\n\n\n\n<p>The time of supply is categorized into two groups under RCM\u2013 Time of supply for goods and time of supply for services. Let\u2019s go through these two categories in detail below:<\/p>\n\n\n\n<p><strong>E. Time of Supply for Goods<\/strong><\/p>\n\n\n\n<p>For the Reverse Charge Mechanism, the time of supply for goods shall take place earliest on any of the following dates under the Indian <a href=\"https:\/\/payally.co.uk\/glossary\/financial-ecosystem\/\" target=\"_blank\" rel=\"noopener\">finance ecosystem:<\/a><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The date of payment<\/li>\n\n\n\n<li>The date of receipt of goods<\/li>\n\n\n\n<li>The date that falls immediately after 30 days from the issuance date of the normal invoice from the supplier\u2019s end<\/li>\n<\/ul>\n\n\n\n<p>If it becomes impossible to determine the time of supply, the time of supply will be considered the date of entry in the <a href=\"https:\/\/unacademy.com\/content\/ca-foundation\/study-material\/accountancy\/books-of-accounts\/\" target=\"_blank\" rel=\"noopener\">accounts book<\/a> of the recipient. Let us further understand this with an example:<\/p>\n\n\n\n<p>Suppose, given are the following entries:<\/p>\n\n\n\n<p>a)&nbsp;Date of receipt of goods is 15<sup>th<\/sup> May, 2021<\/p>\n\n\n\n<p>b)&nbsp;Date of tax invoice is 1<sup>st<\/sup> July, 2021<\/p>\n\n\n\n<p>c)&nbsp;Date of entry in receiver\u2019s book is 18<sup>th<\/sup> May, 2021<\/p>\n\n\n\n<p>Following this information provided, the time for the supply of service will be 15<sup>th<\/sup> May, 2021.<\/p>\n\n\n\n<p><strong>F.<\/strong> <strong>Time of Supply for Services<\/strong><\/p>\n\n\n\n<p>In the case of reverse charge, the<a href=\"https:\/\/www.zoho.com\/in\/books\/gst\/what-is-time-of-supply-under-gst.html\" target=\"_blank\" rel=\"noopener\"> time of supply <\/a>calculation for services will be the earliest of the following dates in the connected finance ecosystem:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The date of payment<\/li>\n\n\n\n<li>The date of issuance of invoice by the recipient<\/li>\n\n\n\n<li>The date that falls immediately after 60 days from the date of issuance of GST-compliant invoice by the unregistered supplier<\/li>\n<\/ul>\n\n\n\n<p>If a difficulty arises in determining the time of supply, the time of supply will be the date of entry in the accounts book of the recipient. Go through the following example to gain a detailed understanding of the time of supply for services. For example:<\/p>\n\n\n\n<p>a)\u00a0Payment date is 15<sup>th<\/sup> July, 2021<\/p>\n\n\n\n<p>b)\u00a0Date of issuance of invoice by the recipient is 24<sup>th<\/sup> July, 2024<\/p>\n\n\n\n<p>c)\u00a0Date for making an entry in the accounts book of the receiver is 18<sup>th<\/sup> July, 2021<\/p>\n\n\n\n<p>Following the conditions, the time of supply for service in this case will be 14<sup>th<\/sup> July, 2021.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<iframe loading=\"lazy\" title=\"Whether Sale of Goods to unregistered Persons - Intra-State or Inter-State || CA (Adv) Bimal Jain\" width=\"640\" height=\"360\" src=\"https:\/\/www.youtube.com\/embed\/w8_DEQnPpxI?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n<\/div><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Registration Rules Under RCM<\/strong><\/h2>\n\n\n\n<p>According to Section 24 of the CGST Act, 2017, a person who is eligible to pay GST under the reverse charge mechanism must be a registered individual under GST. The threshold applicable limit of <strong>\u20b9<\/strong>20 lakh or <strong>\u20b9<\/strong>40 lakh, as per the case, is not applied.<\/p>\n\n\n\n<p>On the other hand, in RCM transactions, suppliers must note on invoice in respect if tax is payable under RCM but cannot claim ITC on the GST to be paid. However, the recipients can claim ITC on the GST paid for carrying out <a href=\"https:\/\/www.businessnewsdaily.com\/2747-great-business-ideas.html\" target=\"_blank\" rel=\"noopener\">business-related<\/a> goods and services.<\/p>\n\n\n\n<p>When it comes to composition dealers, they are eligible for tax payable at standardized rates under RCM in comparison with their usual applicable rates. On the other hand, the GST compensation cess also applies well to RCM transactions. This thereby indicates that for some applicable items, the cess should be calculated and paid with regular GST under RCM.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Input Tax Credit (ITC) Under RCM<\/strong><\/h2>\n\n\n\n<p>When GST payment is done under RCM, the supplier cannot claim for Input Tax Credit (ITC). The recipients however have the ultimate right to claim and optimise ITC under two conditions:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Recipients must have received the goods and services<\/li>\n\n\n\n<li>The goods and services can be used only for meeting <a href=\"https:\/\/requirements.com\/Content\/What-is\/what-are-business-requirements-1\" target=\"_blank\" rel=\"noopener\">business requirements<\/a><\/li>\n<\/ul>\n\n\n\n<p>Circular No. 211\/5\/2024-GST provides clarity on the timeframe for claiming Input Tax Credit (ITC) on GST paid under the Reverse Charge Mechanism (RCM). According to the circular, the ITC can only be claimed within the financial year, provided the invoice details were available.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Is Self-Invoicing?<\/strong><\/h2>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"900\" height=\"506\" src=\"https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/What-Is-Self-Invoicing.png\" alt=\"What Is Self-Invoicing?\" class=\"wp-image-67673\" title=\"\" srcset=\"https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/What-Is-Self-Invoicing.png 900w, https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/What-Is-Self-Invoicing-300x169.png 300w, https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/What-Is-Self-Invoicing-150x84.png 150w, https:\/\/piceapp.com\/blogs\/wp-content\/uploads\/2025\/02\/What-Is-Self-Invoicing-768x432.png 768w\" sizes=\"auto, (max-width: 900px) 100vw, 900px\" \/><figcaption><\/figcaption><\/figure>\n\n\n\n<p>Self-invoicing happens when buyers themselves create the invoice instead of merchants delivering it to buyers. This invoicing solution is necessitated because of the shifting of the tax liability upon the person liable under RCM provisions. <\/p>\n\n\n\n<p>The registered person becomes liable for GST payment when a registered business acquires goods or services from an unregistered supplier. The formation of bulk invoicing allows the registered business to discharge its tax liability.<\/p>\n\n\n\n<p>Self-invoicing is to be done on the receipt of goods and services from unregistered suppliers for furtherance of business. However, it can issue a consolidated invoice at the end of the month for small purchases, provided the total aggregate supply value exceeds \u20b95,000 during one specific day. <\/p>\n\n\n\n<p>Note that not all purchases would require self-invoicing when purchased from unregistered suppliers; however, they may require self-invoicing if they fall under RCM provisions.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>How Is Self-Invoicing Helpful?<\/strong><\/h3>\n\n\n\n<p>Self-invoicing is favourable for both a customer and supplier. Some of the benefits of <a href=\"https:\/\/piceapp.com\/blogs\/what-is-self-invoicing-under-gst\/\">self-invoicing<\/a> can be summarized below:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Enhanced Efficiency<\/strong>: A self-billed invoice lessens the supplier&#8217;s obligations since a customer prepares an invoice that lessens the compliance burden and increases efficiency.<\/li>\n\n\n\n<li><strong>Timely Payments<\/strong>:&nbsp;With self-billed invoices, usually, payments are made with the sending of an invoice by a customer. Thus, the supplier gets quicker payments.<\/li>\n\n\n\n<li><strong>Greater Accountability<\/strong>:&nbsp;One of the biggest advantages of self-invoicing is that the customer can manage invoices by himself. He could even alert the supplier about the invoice to keep the transactional process moving.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Conclusion<\/strong><\/h2>\n\n\n\n<p>To conclude, the RCM under goods and services tax is important for establishing a neat and <a href=\"https:\/\/www.betterworks.com\/magazine\/accountability-in-leadership\/\" target=\"_blank\" rel=\"noopener\">accountable system <\/a>of taxation. It shifts responsibility to a specified class of recipients that would minimize evasion, enhance compliance and allow seamless feeding of transactions into the GST platform. <\/p>\n\n\n\n<p>This applies especially in the cases of supply to unregistered person under GST.<\/p>\n\n\n\n<p class=\"has-background\" style=\"background-color:#f2f5f9\">\ud83d\udca1If you want to streamline your payment and make GST payments via credit card, consider using\u00a0<a href=\"https:\/\/piceapp.com\/\">the PICE App<\/a>. Explore the PICE App today and take your business to new heights.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>FAQs<\/strong><\/h3>\n\n\n<div id=\"rank-math-faq\" class=\"rank-math-block\">\n<div class=\"rank-math-list \">\n<div id=\"faq-question-1740120233655\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><strong><strong>What is the Reverse Charge Mechanism (RCM) under GST?<\/strong><\/strong><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>RCM is a provision where the liability to pay GST shifts from the supplier to the recipient. It applies in specific cases, such as purchases from unregistered suppliers, notified goods and services, and certain e-commerce transactions.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1740120560010\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><strong><strong>When does RCM apply to transactions with unregistered persons?<\/strong><\/strong><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>RCM applies when a registered taxpayer purchases goods or services from an unregistered supplier. In such cases, the registered buyer must pay GST on behalf of the supplier and comply with self-invoicing requirements.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1740120565443\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><strong><strong>Can Input Tax Credit (ITC) be claimed on GST paid under RCM?<\/strong><\/strong><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>Yes, the recipient can claim ITC on GST paid under RCM, provided the goods or services are used for business purposes. However, the supplier paying GST under RCM cannot claim ITC.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1740120570811\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><strong><strong>What is the time of supply for goods and services under RCM?<\/strong><\/strong><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>For goods, it is the earliest of payment date, receipt of goods, or 30 days from invoice issuance. For services, it is the earliest of payment date, invoice issuance, or 60 days from invoice date.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1740120576140\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><strong><strong>What is self-invoicing, and when is it required?<\/strong><\/strong><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>Self-invoicing is when the buyer generates an invoice instead of the supplier. It is required when purchasing from unregistered suppliers under RCM to ensure tax compliance and proper documentation.<\/p>\n\n<\/div>\n<\/div>\n<\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>Key Takeaways The Reverse Charge Mechanism (RCM) under the Goods and Services Tax (GST) is a unique provision that transfers the tax liability from the supplier of goods or services to their recipient. Instead of the supplier collecting and depositing the tax as in the usual way of taxation, RCM ensures business compliance and direct [&hellip;]<\/p>\n","protected":false},"author":8,"featured_media":67669,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-67509","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-gst"],"_links":{"self":[{"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/posts\/67509","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/comments?post=67509"}],"version-history":[{"count":10,"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/posts\/67509\/revisions"}],"predecessor-version":[{"id":67710,"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/posts\/67509\/revisions\/67710"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/media\/67669"}],"wp:attachment":[{"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/media?parent=67509"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/categories?post=67509"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/piceapp.com\/blogs\/wp-json\/wp\/v2\/tags?post=67509"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}