4 Common Mistakes to Avoid With Reverse Charge Mechanism Under GST

Reverse Charge Mechanism Under GST involves a mechanism where the recipient, rather than the supplier, is liable to pay GST on specified goods or services. While the process itself is usually straightforward, businesses commonly run into avoidable issues along the way. Here are the mistakes we see most often, and how to steer clear of them.

Mistake 1

Not identifying reverse charge applicability on specific expense categories.

Mistake 2

Trying to set off reverse charge liability against existing credit balance.

Mistake 3

Missing the self-invoicing requirement for unregistered supplier transactions.

Mistake 4

Under-reporting reverse charge liability in returns.

How to Avoid These Issues

Most of these mistakes come down to preparation. Having the right documents ready — List of notified goods/services under reverse charge, Self-invoice generated for the transaction, where required, Tax paid in cash (reverse charge liability generally can't be set off against ITC), among others — and understanding the process before you start goes a long way toward a smooth outcome with the notified list of goods and services under reverse charge.

Quick Reference: What You'll Need

• List of notified goods/services under reverse charge
• Self-invoice generated for the transaction, where required
• Tax paid in cash (reverse charge liability generally can't be set off against ITC)
• Input tax credit claim for the tax paid, where eligible