Reverse charge, twice over: India’s RCM and the EU’s Article 196
“Reverse charge” means the buyer accounts for the tax instead of the seller. Beyond that, the Indian and European versions differ in when they apply, what you print, and what happens to the invoice total.
Both systems shift the liability for tax from the supplier to the recipient. That shared idea is why they share a name, and why people assume the paperwork is interchangeable. It is not.
India: Section 9(3) and 9(4)
Under the CGST Act, reverse charge applies to notified categories of supply — goods transport agency services, legal services from an advocate, director’s fees, import of services, and others — and to certain purchases from unregistered suppliers. The supplier does not collect the tax; the recipient pays it directly to the government and claims credit where eligible.
On the invoice this means three things. First, the invoice must state that tax is payable on reverse charge — it is a required particular under Rule 46. Second, the tax amount is shown but excluded from the amount the recipient pays you. Third, the recipient, not you, reports and remits it.
The EU: Article 196
For most B2B services supplied to a customer established in another member state, the place of supply is where the customer is, and the customer accounts for the VAT. The supplier issues an invoice with no VAT, showing the customer’s VAT identification number and an explicit statement that VAT is reverse charged.
Article 226 of the VAT Directive requires a reference to the relevant provision whenever an exemption or reverse charge applies. In practice that means wording along the lines of "VAT reverse charged — Article 196 of Council Directive 2006/112/EC". Vague phrasing like "no VAT charged" does not satisfy it.
Goods are different from services
An intra-Community supply of goods is not a reverse charge under Article 196 — it is an exempt supply under Article 138, with the customer accounting for VAT on acquisition. The economics are similar and the invoice wording is not. Using the services citation on a goods invoice is a common and avoidable error.
Side by side
| India (RCM) | EU (Article 196) | |
|---|---|---|
| Trigger | Notified supply categories, or unregistered supplier | Cross-border B2B supply of services |
| Customer tax number | Recommended | Required on the invoice |
| Tax shown on invoice | Yes, but excluded from the total | No VAT line at all |
| Required wording | Statement that tax is payable on reverse charge | Reference to Article 196 (or 138 for goods) |
| Who remits | Recipient | Customer |
Two checks worth automating
- For the EU, a reverse charge with both VAT numbers registered in the same country is almost always a mistake — a domestic supply carries VAT at the local rate. Invoicr warns when it sees this.
- For India, if you enable reverse charge, confirm the supply is genuinely in a notified category. The mechanism is not optional and not a way to avoid collecting tax.
Neither of these is a substitute for advice. What software can do reliably is make sure the invoice says what it needs to say, in the right words, with the right numbers excluded from the right totals.
Invoicr validates structure and arithmetic, not your business facts. This is general information, not tax, accounting or legal advice — check anything consequential with your accountant.