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Reverse charge mechanism ( RCM) Accounting Entries in tally

In reverse charge under gst; the tax liability is imposed on the  receiver of the goods or services. In normal case we know the seller , supplier or services provider is liable to collect tax from buyer and responsible for the payment of tax. GST mandates the reverse charge mechanism( RCM) in the following three scenarios of business.

  1. Purchase from un-registered dealer ( ULD), The buyer is liable to pay GST.( Exemption limit is 5000 in a day.)  Section 9(4) of CGST/SGST (UTGST) Act, 2017/section 5(4) of IGST Act, 2017
  2. Import, The importer is responsible for tax payment.
  3. Certain goods and services notified by the govt under section 9(3) of CGST/SGST (UTGST) Act,
    2017/&section 5(3)of IGST Act, 2017.

Activate Revers charge in tally

F11 Features> F3 Statutory

Activate gst & set alter gst details, In the gst details screen.

Enable tax liability on reverse charge: Yesenable tax liability on reverse charge

Reverse charge voucher entry from unregistered dealer

ABC Ltd purchased 10 Nos mobiles from Vishal Mobiles @ 900 each. the gst rate of mobile is 12% HSN code is 8517. Vishal Mobiles is an unregistered dealer.

  • Create a party ledger, Registration type of party should be selected as Unregistered.
  • Create stock item mobile ,Set gst rate at stock item level.

When you purchase from an unregistered dealer, there will not be any tax in the invoice hence the purchase voucher entry look like .

purchase from unregistred dealer

Note: If you entered a purchase invoice of less than five thousand. The purchase will not become taxable. If you made another purchase from same dealer or another URD  dealer in a day, the total of all purchase is greater than 5000, the entire amount will become taxable under reverse charge.

Reverse charge on purchase of service from Un Registered Dealer ( URD)

05-04-2018 ABC Ltd purchases ‘Accounting services’ Raj Associates Rs 6000. GST Rate for 18% ,Raj associate is an unregistered dealer of services.

  • Create an accounting service ledger,Make sure that you Activate GST & Set alter gst rates in the ledger itself.
  • Create raj associate ledger, registration type unregistered.

Accounting Voucher> F9 Purchases 

For entering service invoice, you should change the voucher mode to accounting invoice use shortcut key Alt + I.

service purchase from unregistered dealer

Click on Tax analysis Alt+F1 You can see the tax details subject to reverse charge.

tax analysis of service purchase

Come back and save the voucher. You can view all these entries in GSTR-2 & GSTR 3B.

Reverse charge entry on inward supplies ( purchase)

Under section 9 (3) under CGST/SGST/UTGST Act and section 5(3) IGST Act states certain notified goods and services are compulsorily reverse chargeable irrespective of the status of dealer registered or unregistered.

Example

On 06-04-2018 ABC Ltd purchases 10 KG tobacco leaves from Star tobacco international a registered dealer  @ 250 /kg . GST rate is 5% under reverse charge.

  • Create stock item tobacco leaves with reverse charge applicable & gst rate 5% . In gst details  press F12 to get this option.

gst details with reverse charge applicable to stock item

  • Create star tobacco international as a registered supplier under sundry creditors.

Now enter

Now enter the purchase

purchase with reverse chargeable goods

Reverse charge entry under import of services

When you import goods or services from foreign country IGST is applicable on Total value of commodity + Basic custom duty + cess + higher education cess.

On 07-04-2018 ABC Ltd imports  Software Development services Worth $ 5000  from  Baikal INC   a USA Company,The conversion rate is  73 INR. Total value of commodity is  365000 in INR.

  • In the above scenario Create a party ledger ‘ Baikal INC’ ,The country should be selected  USA, in this case, make sure that you have not selected India as the country of service provider.
  • Create a service ledger ‘Software development’ under direct or indirect expense based on the nature of usage of service in your business, In GST details reverse charges should be enabled.

service ledger reverse charge import

Let’s input this import entry in purchase voucher as usual.

Accounting voucher> Purchase F9

Import of service voucher entry

If you view Tax analysis Alt+A, Tally automatically detect the entry is import & reverse chargeable. Import is treated as interstate sale and IGST is chargeable.

tax analysis import

GSTR-3B  Report

You can see the reverse charges liability to be booked in the GSTR-3B or GSTR-2 Report.

Display> Statutory Reports>GST> GSTR-3B

GSTR 3B Report

In the report, You can see

Reverse charge liability and input credit to be booked

  1. URD Purchases reverse charge  tax liability   2160
  2. Reverse charge  on inward supply ( purchases )  125
  3. Import of services  65700.00

Let’s take the first case, The purchase from URD is eligible for ITC , Hence  you have to book the tax payment liability & ITC. To do this.

Select The URD purchases and Hit enter, you will get a detailed report of the purchase from URD.

list of purchases from unregistered dealer

Tax liability & input tax credit booking of purchase from URD

Note down all liability or keep in mind, Click Alt + J or Stat adjustment button from the above screen.

You will get statutory adjustment option.

statutory adjustment

The nature of adjustment automatically selected, Increase the tax liability & input tax credit. This means from the all above reverse charge entry there was no tax is booked. You have to book these tax liability & input tax credit separately.

Hit enter Key.

For booking input tax credit, you should debit the following ledgers.

6 %     9000        CGST     540 ………. Dr

6%      9000        SGST      540………..Dr

9%     6000          CGST     540 ……….Dr

9%     6000          SGST      540………Dr

For booking GST Payable  you should credit the following ledger with the taxable amount.

6 %     9000        CGST     540 ………. Cr

6%      9000        SGST      540………..Cr

9%     6000          CGST     540 ……….Cr

9%     6000          SGST      540……….Cr

Let’s book this in the statutory adjustment voucher.

adjustment for all urd purchases

How to make the payment of Tax payable on RCM

Let’s make the payment of tax, say paying on 01-05-2018 Urd purchase tax 2160

Go to payment voucher > Alt +S  For making statutory payment.

statutory payments

Here is the payment voucher.

urd purchase payment voucher

Now you can view the input tax credit in your balance sheet as minus balance in Tax liability.

Tax credit in balance sheet

Adjusting entry of Tax liability on Inward supply under reverse charge

The next one is booking of tax liability and ITC on inward supply. In GSTR-3B Place the cursor on Reverse charge inward supply Under Reverse charge liability and Input credit to be booked, Hit ENTER.

You will get the List of reverse charge supplies and tax liability summary.

List of reverse charge supply

Now press Alt+J or click on Stat Adjustment, the relevant option will appear automatically.

Stat adjustment

Press ENTER.

You have to create a ledger RCM u/s 9(3)  under group current asset.

revrse charge adjustment under inward supply

Save the voucher, Now you can see the RCM under sec 9 (3) ledger & it’s balance in Balance sheet.

Now let’s make payment of tax liability of inward supply

Go to payment Voucher > Stat payments  Alt+S

statutory payment of rcm inward supply

Here is the payment voucher.

Statutory payment voucher

Hit enter & save

Booking of  input tax credit of purchase under reverse charge

Journal voucher >Statutory adjustment.

Increase of input tax liability of inward suppy

Here is the adjustment entry

adjust ment entry increase of input tax credit rcm inward supply

Now you look at the balance sheet, the ITC amount is increased by 125.

Adjusting entry of Tax liability on import of service under reverse charge

In GSTR-3B You can see the import of service is the only tax liability to be booked.

gstr 3b

Hit enter, and go to details

click statutory adjustment to increase the tax liability to be booked, the relevant option automatically selected as shown below.

statutory adjustment for import

Here is the RCM on import tax liability booking entry

Tax payment entry of RCM under import

Payment voucher> Stat payment

rcm payment entry under reverse charge of import

ITC booking of RCM Import entry

Journal voucher > Stat Adjustment

Increase of input tax credit.

purchase under reverse charge

Save the screen. Now if you look at balance sheet, you can see all the input tax credit displayed in your balance sheet. And at the same time you have completed all tax payments and other tax compliances under GST reverse charge.

input tax credit under reverse charge in tally

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