When businesses ask about the registration threshold limit under reverse charge in GST, they often expect a clear number. Under the normal charge system, small businesses enjoy exemption up to a turnover of ₹20 lakh (₹40 lakh for goods in many states). However, when reverse charge applies, these limits do not protect the buyer. Even if turnover is below the threshold, a taxpayer must register and pay GST if liable under Reverse Charge Mechanism (RCM).
This makes RCM an important compliance point for startups, SMEs, and professionals. Let’s explore the rules in detail.
What is Reverse Charge in GST?
Normally, the supplier collects GST and pays it to the government. In reverse charge, the liability shifts to the buyer. The government introduced RCM to bring unorganized sectors, imports, and notified services into the tax net.
Because the tax burden is on the buyer, the registration threshold limit under reverse charge in GST works differently than under normal supply.
Registration Rules under Reverse Charge
Section 24 of the GST Act makes it mandatory for certain businesses to register under GST, regardless of turnover. Reverse charge is one such case.
| Situation | Requirement |
|---|---|
| Normal supply | Registration required if turnover exceeds ₹20 lakh (₹10 lakh in special category states). |
| Goods supply (specific cases) | Threshold may be ₹40 lakh. |
| Reverse charge liability | Registration mandatory even if turnover is NIL or below the threshold. |
This means if you purchase from an unregistered supplier or receive a service notified under RCM, you must register, pay tax, and then claim ITC.
Example of Registration Threshold Limit under Reverse Charge
Imagine a consultant in Delhi with turnover of only ₹5 lakh, which is below the ₹20 lakh threshold. Normally, registration is not required. However, if the consultant avails legal services from a lawyer (covered under RCM), GST liability arises.
Because of this, the consultant must take GST registration despite being under the threshold. Hence, the registration threshold limit under reverse charge in GST becomes irrelevant in such cases.
Common Services and Goods under RCM
Businesses need to be careful about transactions that trigger compulsory registration. Some common RCM items include:
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Legal services provided by advocates.
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Import of services from outside India.
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Transportation services by Goods Transport Agency (GTA).
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Supply of cashew nuts, bidi leaves, raw cotton, etc. from unregistered dealers.
Whenever such transactions happen, registration is compulsory.
Key Points to Remember
When discussing the registration threshold limit under reverse charge in GST, keep these rules in mind:
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Turnover thresholds (₹20 lakh/₹40 lakh) do not apply for RCM.
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Even a single RCM transaction can trigger GST registration.
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ITC can be claimed only after paying RCM in cash.
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Businesses should evaluate vendor contracts to identify potential RCM liabilities.
Conclusion
The registration threshold limit under reverse charge in GST works differently compared to normal supply. If a business is liable to pay tax under RCM, registration becomes mandatory irrespective of turnover. This ensures tax compliance in sectors where the supplier base is small or unorganized.
👉 Need clarity on whether your business needs GST registration due to RCM? Book a free consultation with our GST experts today.