Reverse Charge & Branch Transfer Compliance

Normally, the seller collects GST from you and pays it to the government. Under RCM, that responsibility flips — you, the buyer, calculate the GST yourself, pay it directly to the government, and then (if you are entitled to) claim it back as input tax credit. It applies to a specific, notified list of services and situations — not to all your purchases.

The Government notifies specific categories from time to time. The most commonly encountered ones include: legal services rendered by an advocate or firm of advocates to a business entity; services by a Goods Transport Agency (GTA) that has not opted for forward charge; services by an insurance agent to an insurance company; sponsorship services provided to a body corporate or partnership firm; services supplied by a director of a company to that company; and renting of motor vehicles from a non-body-corporate supplier to a body corporate, among others. This list is not exhaustive and is amended by notification, so it needs periodic verification against current notifications rather than a static internal list.

No — and this is one of the most persistent misunderstandings in GST practice. The original, blanket version of Section 9(4) (covering essentially all purchases from unregistered persons above a threshold) was suspended shortly after GST's 2017 launch and never came back into force in that broad form. What exists today is a narrower, specifically notified version that applies only to certain categories the Government has explicitly notified — most prominently, purchases of certain construction-linked and specified goods/services by promoters in the real estate sector under a dedicated notification. For most ordinary businesses, routine purchases from unregistered vendors do not automatically trigger RCM under Section 9(4) — but this must be confirmed against your specific sector and the current notification, not assumed either way.

Under Section 31(3)(f) of the CGST Act, where you receive a supply liable to RCM from a supplier who has not issued you a tax invoice — which is the norm when the supplier is unregistered or located outside India — you, the recipient, must issue a self-invoice recording the transaction, the value, and the tax payable. This self-invoice is your primary evidentiary document for both paying the RCM liability and later claiming the corresponding input tax credit.

No. RCM liability must be discharged in cash — through the electronic cash ledger — and cannot be set off against your existing electronic credit ledger balance, regardless of how much ITC you are carrying forward. Once the cash payment is made and the self-invoice is issued, the corresponding amount can then be claimed as ITC (subject to eligibility), which then sits in your credit ledger for future use against your own output tax liability.

The liability does not expire because it was unrecorded — it remains payable along with interest at 18% per annum calculated from the original due date of each missed period. Depending on how the omission is characterised (an inadvertent error versus willful suppression), penalty exposure ranges from a modest amount under Section 73 to up to 100% of the tax involved under Section 74 if suppression or fraud is alleged. The practical, and generally advisable, approach on discovery is voluntary disclosure and payment (with interest) before the department raises it, which materially improves the penalty outcome compared to being caught in a departmental audit.

Yes, in most cases. Import of service — receipt of a service from a supplier located outside India, for a consideration, where the place of supply is in India — is brought under RCM by Section 5(3) of the IGST Act. The Indian recipient must self-invoice, pay IGST under RCM, and can then claim it back as ITC if the service is used for taxable business purposes and is not blocked under Section 17(5). This applies to SaaS subscriptions, cloud hosting, consulting fees, marketing services, and design work billed by a foreign entity, among others.

Under Section 25(4) of the CGST Act, if a business holds more than one GST registration — even under the same PAN, even for the same legal entity — each registration is legally treated as a separate ('distinct') person for GST purposes. This means any transfer of goods or provision of services between two GSTINs of your own company is a taxable supply, just as if you were transacting with an unrelated third party — even though no external invoice or third-party payment is involved.

Rule 28 of the CGST Rules governs this. The primary basis is 'open market value' — broadly, the price such goods or services would fetch in an arm's-length transaction. However, where the receiving branch is entitled to full input tax credit, the value declared on the invoice is itself deemed to be the open market value — a significant simplification that removes valuation disputes in the common case of a fully-credit-eligible recipient branch. Where the recipient does not have full ITC eligibility (e.g., it makes exempt supplies), a more careful open-market-value determination is required.

A tax invoice is required — a delivery challan alone is not sufficient for a taxable inter-branch stock transfer between distinct persons. The delivery challan may accompany the goods in transit under the e-way bill rules, but the underlying GST liability and the receiving branch's entitlement to input tax credit both depend on a properly issued and valued tax invoice being raised by the transferring GSTIN.

An ISD is typically a head office that receives invoices for services procured centrally on behalf of multiple branch GSTINs — statutory audit fees, group software licences, common insurance, shared consultancy — and distributes the input tax credit on those invoices to the branches that actually used the service, proportionate to each branch's turnover in the relevant period, under Rule 39. Following amendments effective 1 April 2025, ISD registration is now mandatory for entities that have such common input services intended for cross-GSTIN distribution — it is no longer purely an optional mechanism where cross-charge could be used interchangeably for externally-billed common services.

ISD distribution moves already-paid input tax credit from a centrally received invoice out to the branches that use the underlying service, via a GSTR-6 filing and an ISD invoice — no fresh GST is generated or paid at the distribution step, only the existing credit is allocated. Cross-charge, by contrast, is a fresh taxable supply between two GSTINs (for internally rendered services like shared staff, management oversight, or IT support that a branch provides to another branch of the same company) — the transferring GSTIN issues a tax invoice, charges GST, and pays it, and the receiving GSTIN claims that GST as fresh ITC. The two mechanisms serve different situations and are not interchangeable for identical transaction types.

Rule 39 of the CGST Rules prescribes a turnover-based formula: eligible credit is distributed to each recipient GSTIN in the ratio of that GSTIN's turnover in the relevant period to the aggregate turnover of all recipient GSTINs to which the credit relates, for the same period. Credit attributable exclusively to one GSTIN must be distributed only to that GSTIN; credit attributable to more than one GSTIN is distributed pro-rata by turnover among those GSTINs specifically, not necessarily across every branch in the company.

RCM tax liability is reported in Table 3.1(d) of GSTR-3B (inward supplies liable to reverse charge) in the period the liability arises. The corresponding input tax credit, once eligible, is claimed in Table 4(A)(3) as 'Inward supplies liable to reverse charge'. Both entries should be internally reconciled every period — liability recorded without a matching ITC claim (where eligible) results in an avoidable cash cost, while an ITC claim without a corresponding recorded and paid liability is a mismatch that invites scrutiny.

The transferring GSTIN reports the cross-charge invoice as an outward supply in its GSTR-1, and pays the applicable GST through its GSTR-3B. The receiving GSTIN sees this reflected as an inward supply in its GSTR-2B (auto-populated from the transferring GSTIN's GSTR-1) and claims the eligible input tax credit in its own GSTR-3B. Because both GSTINs belong to the same company, this exercise is essentially a bookkeeping and cash-neutral-at-group-level transaction — but it must still flow through the standard return mechanics exactly as if the two GSTINs were unrelated parties.

Generally, yes — where an employee is deployed from one GSTIN to support the operations of another GSTIN of the same company, this is typically treated as a supply of manpower/management service between distinct persons, valued and cross-charged under Rule 28, unless a specific exemption or a defensible employer-employee relationship structure applies to that particular arrangement. This is a fact-specific area that has generated litigation and differing interpretations, so it needs case-by-case review rather than a blanket assumption in either direction.

The GST rate rationalisation effective September 2025 restructured the general goods/services rate slabs; RCM and branch cross-charge liability is computed at whatever rate applies to the underlying supply itself under the current rate schedule — it does not introduce a separate RCM-specific rate. In practice, this means the RCM tax rate on, say, GTA services or legal services, and the cross-charge rate on a transferred service, must simply be checked against the currently applicable rate for that category of supply, not assumed to remain at a pre-rationalisation rate.

No, not automatically. If the receiving branch makes exempt supplies (or a mix of taxable and exempt supplies), the general input tax credit restriction and reversal rules under Section 17(2) and Rule 42/43 of the CGST Rules apply to the cross-charge invoice just as they would to any other inward supply — full credit is only available to the extent attributable to taxable supplies. This is also relevant to the Rule 28 valuation shortcut, since the 'invoice value = open market value' simplification specifically assumes full ITC eligibility at the recipient.

We do not rely solely on your existing bookkeeping tags. We independently review the vendor master and purchase register against the current CBIC-notified RCM categories, cross-check GTA vendor declarations, verify director sitting-fee treatment against Board minutes, and separately review any foreign-currency payments for import-of-service exposure. This independent line-by-line review is precisely how we typically surface at least one previously unflagged RCM category in a first engagement.

No safe minimum exists in law — RCM liability under Section 9(3) applies based on the nature of the transaction (e.g., paying an advocate, hiring a GTA), not on the size of the paying business, and the distinct-person rule for branch cross-charge applies the moment a business holds more than one GSTIN, regardless of revenue scale. Smaller businesses often assume, incorrectly, that this compliance area is only relevant to large corporates — the exposure exists proportionately at any size, though the practical materiality of the amounts involved obviously scales with transaction volume.

We recommend a monthly review aligned to the GSTR-3B filing cycle for active multi-branch or RCM-heavy businesses, with a deeper quarterly reconciliation against GSTR-2B and a full annual reconciliation ahead of GSTR-9/9C filing. Businesses with lower RCM/branch transaction volume may manage with a quarterly review, but the annual reconciliation before GSTR-9/9C should never be skipped, since this is where accumulated small mismatches typically surface.

Where the omission is treated as a bona fide error, the department can raise a demand under Section 73 with interest at 18% per annum and a penalty capped at 10% of the tax amount (or a smaller specified minimum), payable if settled within the prescribed window. Where the department alleges willful suppression or intent to evade — more likely if the same gap recurs across several periods without correction — Section 74 applies, carrying interest and a penalty of up to 100% of the tax amount. The specific classification depends heavily on the facts and how promptly the business corrects course once the gap is identified.

If GST was paid under RCM on a transaction that, on closer review, was not actually taxable (for example, it fell under an exemption notification), the excess tax paid can generally be claimed as a refund under Section 54 of the CGST Act, subject to the applicable limitation period and the unjust-enrichment test. This is a fact-specific claim that requires a clear documentary basis establishing the exemption and should be pursued with proper professional support rather than a simple return adjustment.

Yes. An e-way bill is required for the movement of goods above the prescribed value threshold (currently ₹50,000 in most states, with some state-specific variations) regardless of whether the movement is a sale to a third party or a stock transfer between two GSTINs of the same company. The e-way bill should be generated with reference to the tax invoice raised for the cross-charge — not merely a delivery challan — to keep the documentation trail consistent.

RCM under the CGST/IGST Act is a central-law mechanism and applies uniformly across India in terms of which categories are notified and how the tax is computed — GST itself is a national law, so RCM rules do not vary by state. However, whether a transaction between two branches attracts CGST+SGST (intra-state supply, which does not typically arise between distinct persons in different states) or IGST depends on whether the transferring and receiving GSTINs are in the same state or different states — cross-state branch transfers attract IGST, not CGST+SGST.

A business registered under the Composition Scheme cannot claim input tax credit at all — including on RCM payments. However, Composition taxpayers are still liable to pay GST under RCM on notified inward supplies in the same manner as regular taxpayers; they simply cannot recover that RCM payment as ITC, since the entire premise of the Composition Scheme is a simplified, credit-ineligible tax payment on turnover. This makes RCM a pure cost (not a pass-through) for Composition taxpayers, which is a relevant factor when evaluating whether Composition remains the right scheme for a business with significant RCM-liable purchases.

At minimum: the self-invoices raised for every RCM transaction, evidence of cash payment of the RCM liability, the ITC claim trail in GSTR-3B, the cross-charge tax invoices raised between GSTINs with the Rule 28 valuation basis documented, the ISD invoices and GSTR-6 filings if applicable, Board resolutions or agreements underlying director-fee or sponsorship arrangements, and GTA forward-charge declarations where relevant. We recommend retaining this documentation for at least the statutory limitation period applicable to GST demand proceedings, which can extend several years for Section 74 cases.

This is a textbook ISD scenario — a single invoice for a service benefiting employees across multiple GSTINs. Where the mandatory-ISD conditions apply to your structure, the head office should hold ISD registration and distribute the eligible credit to each branch GSTIN in proportion to that branch's turnover under the Rule 39 formula, via a monthly ISD invoice and GSTR-6 filing, rather than claiming the full credit centrally or informally allocating it via a cross-charge invoice.

PNPC's fee for this engagement depends on the number of GSTINs involved, transaction volume, whether ISD registration needs to be newly obtained, and whether the engagement includes a historical clean-up exercise in addition to the ongoing monthly process. We provide a written scope and fixed-fee proposal after the initial exposure-mapping review, so you know the full cost before committing to the engagement — there is no open-ended hourly billing for this service.

In-house accounting teams are typically strong on day-to-day bookkeeping but are not always current on the specific, frequently-amended list of RCM-notified categories, the post-2025 mandatory ISD rules, or the Rule 28/39 valuation mechanics that this area requires. The compounding risk of RCM and branch cross-charge is that errors are usually silent for years — no vendor chases you for unpaid RCM tax, and no immediate cash-flow signal flags a missing cross-charge invoice — until a departmental audit surfaces several years of accumulated exposure at once. A periodic independent CA review is specifically designed to catch what an internal team, working from the same assumptions year after year, is structurally unlikely to catch on its own.

Full RCM exposure mapping against your vendor register and current CBIC notifications; self-invoicing process design and template setup; branch/GSTIN cross-charge framework with Rule 28 valuation methodology; ISD registration assessment and application where applicable; monthly RCM liability and ITC reconciliation against GSTR-3B; branch cross-charge invoice review and GSTR-1/GSTR-2B reconciliation; GSTR-6 filing where ISD registration applies; annual reconciliation ahead of GSTR-9/9C; and departmental query or audit support if a notice is received during the engagement period.

Before the first inter-branch transaction occurs, ideally alongside the new GSTIN registration itself. Designing the cross-charge and ISD framework before the first stock transfer or shared-service arrangement takes place is materially simpler and cheaper than retrofitting correct treatment onto several months of already-completed, incorrectly-documented transactions.

Supplies to and from SEZ units carry their own distinct GST treatment (typically zero-rated for supplies to an SEZ unit/developer for authorised operations), which is a separate framework from the RCM rules discussed here. Where a domestic business outside the SEZ receives a notified RCM-category service from a supplier that happens to be located in an SEZ, the RCM mechanics generally still apply based on the nature of the service, but the interaction with SEZ zero-rating provisions needs a specific, fact-based review rather than a generic answer.

RCM applies based on the substance of the service received and the category of supplier, not on how a contract is labelled — attempting to restructure engagements purely to avoid RCM (rather than for a genuine commercial reason) carries real risk of being recharacterised by the department, along with the underlying tax, interest, and potential penalty. The more productive approach is accurate identification, timely self-invoicing, and full, eligible ITC recovery — which, for a business with genuine input tax credit eligibility, makes RCM cash-flow-neutral over the return cycle rather than a real cost.

For clients receiving services from UAE-based group entities or vendors — consulting, shared services, licensing, or management fees — our Dubai office can confirm the UAE-side invoicing and VAT treatment while our India teams confirm the correct Indian RCM self-invoicing and ITC treatment on the same transaction, so both sides of a single intercompany or vendor arrangement are handled coherently under one engagement rather than being reviewed in isolation by two unconnected advisors.