Forward Charge vs Reverse Charge in GST (Simple Guide with Examples)

What is Forward Charge and Reverse Charge Mechanism in GST?

A plain-English explainer with real examples, a quick comparison table, and step-by-step compliance notes.

Forward Charge (FCM)

• Supplier charges GST on the invoice and pays it to the Govt (after adjusting ITC).
• Buyer pays invoice value including GST and can take ITC (if eligible).

Reverse Charge (RCM)

• Recipient (buyer) pays GST directly to the Govt (not to the supplier).
• RCM tax must be paid in cash; then recipient (buyer) may claim ITC (subject to eligibility).

FCM vs RCM — Quick Comparison

Point	Forward Charge	Reverse Charge
Who pays GST to Govt?	Supplier	Recipient (buyer)
Invoice from supplier shows	Tax amount + GSTIN	Usually “Tax payable under RCM” or value without GST (if supplier is unregistered)
How is GST paid?	Through GSTR-3B (using cash/ITC)	Cash only in GSTR-3B (Table 3.1(d)); credit cannot be used to pay RCM
ITC to recipient	As per normal rules (from supplier’s tax)	Recipient may take ITC of RCM tax (subject to eligibility/conditions)
Typical use cases	Regular sale of goods/services	Notified supplies: e.g., legal services by advocate, director to company, certain GTA freight, some specified categories under notifications
Documents	Supplier issues tax invoice; appears in recipient’s 2B	Supplier marks RCM, and/or recipient may raise self-invoice & payment voucher as applicable

Simple Examples

Example 1 — Forward Charge (regular sale)

• Supplier sells goods worth ₹1,00,000 @ 18% GST.
• Invoice to buyer = ₹1,00,000 + ₹18,000 GST = ₹1,18,000.
• Supplier pays the GST to Govt (after using its ITC). Buyer can claim ₹18,000 ITC if eligible.

Example 2 — Reverse Charge on legal fees

• Company takes legal service from an advocate for ₹1,00,000. RCM applies @ 18%.
• Company pays ₹18,000 GST directly to Govt via GSTR-3B (cash ledger).
• After paying, the company may claim ₹18,000 ITC (subject to normal ITC rules) in the same/next return.

Example 3 — Reverse Charge on director services to company

• Independent director raises invoice of ₹50,000 to a company. RCM applies.
• Company pays GST on ₹50,000 to Govt in cash (not to director) and may claim ITC if eligible.

When does Reverse Charge apply?

• Notified services/goods (e.g., legal services, GTA in specified cases, services by a director to the company, etc.).
• Imports of services for business purposes (recipient is liable under IGST).
• Specific notified cases under Section 9(4) (e.g., for certain classes of recipients and supplies as notified from time to time).
• Always check the latest notification for your category/rate.

Compliance — What to do in returns & books

• Invoice/Docs: Ensure supplier mentions RCM on invoice. Where required (e.g., unregistered supplier in notified case), raise self-invoice & a payment voucher.
• GSTR-3B: Report RCM value in Table 3.1(d) and pay via cash ledger only.
• ITC claim: After payment, claim eligible ITC in Table 4A in the same/next return period.
• Books: Expense Dr / GST RCM Payable Cr → on payment: GST RCM Payable Dr / Cash Cr → on ITC: ITC Dr / GST RCM Payable (set-off) or Output GST.
• Composition taxpayers: Must pay RCM where applicable but generally cannot avail ITC.

Avoid these mistakes

• Trying to pay RCM using ITC (not allowed; must be cash).
• Claiming ITC without paying RCM first.
• Missing self-invoice/payment voucher where required.
• Applying RCM to non-notified/exempt supplies.
• Using the wrong GST rate for the notified category.

Disclaimer: Examples use rounded rates/amounts for learning. Always check the latest GST notifications for your specific category and rate.