GST Reverse Charge Entry in Tally – RCM in Tally ERP 9

GST Reverse Charge Entry in Tally ERP 9

Today, we are going to learn about GST Reverse Charge Entry in Tally ERP 9 in detail including freight and transportation charges as well.

I have already explained GST Accounting Entries in Tally but now we are going to see the entire reverse charge mechanism for gst accounting entries in tally.

Reverse Charge Mechanism is also called as RCM in short and I will be going to use the short form quite a few times in this post.

Let’s start with understanding RCM and then actually doing RCM entries in Tally.

What you will learn in this post

  • What is GST Reverse Charge Mechanism – with example
  • When is GST Reverse Charge Mechanism Applicable
  • How to Enable GST Reverse Charge in Tally
  • How to pass GST Reverse Charge Entry in Tally ERP 9
  • Checking the GSTR-3B for GST Reverse Charge in Tally ERP 9
  • How to pass (Unregistered Dealer) URD Purchase Entry in Tally with GST
  • GST Reverse Charge Entry in Tally – RCM in Tally – Free PDF Download

What is a GST Reverse Charge Mechanism

Reverse Charge Mechanism in GST is a simple concept under which the buyer is responsible for collecting and paying the GST to the government.

Normally the seller is responsible for collecting and paying the GST to the government.

This was the simplest definition of GST reverse charge mechanism.

Let us consider an example and see how it works in practical life and for clear understanding.

Example – 1 – GST Reverse Charge in Tally – Freight/Transport Charges Entry

You are a Goods Transport Agency (GTA) and I am a normal person registered under GST.

I have availed transportation services from you of ₹60,000 and the GST on transportation services is 5%.

We both are from the same state so CGST and SGST will be applicable.

In a normal situation without the reverse charge mechanism in GST, I will pay you ₹60,000 + 5% GST as you have provided GTA services to me.

And then, you will pay the GST of ₹3,000 to the government.

But since reverse charge mechanism is applicable in the above scenario, I will have to pay you ₹60,000 and I also have to pay the government ₹3,000 as GST.

This was a simple yet powerful example to explain you the GST reverse charge mechanism in tally and in general as well.

When is GST Reverse Charge Mechanism Applicable

GST Reverse Charge is generally applicable in the following scenarios.

  1. When a GST Registered Dealer buys from an Unregistered Dealer
  2. When an E-Commerce Operator (Amazon, Flipkart etc.) provides services

See – E-Commerce Accounting Entries in Tally with GST 

  1. Certain list of Goods and Services which are notified by the Central Board of Indirect Taxes and Customs (CBIC) which includes transportation services which we saw in the above example.

Now, we will look at how you can enable GST Reverse Charge Mechanism in Tally.

How to Enable GST Reverse Charge in Tally ERP 9

It is very easy to enable GST reverse charge in tally, if you know how you can enable GST in Tally.

Let’s see how you can do it.

  • From Gateway of Tally, go to Company Features in Tally by pressing F11.
  • Then go to Statutory & Taxation.
  • Now, go to the option Set/Alter GST Details, type Yes and press Enter.
  • In the GST Details Menu, there is an option called – Enable Tax Liability on Reverse Charge (Purchase from Unregistered Dealer).
How to Enable GST Reverse Charge in Tally ERP 9
How to Enable GST Reverse Charge in Tally ERP 9
  • Set the above option to Yes.
  • Press Enter and save the options.
  • You will be in the Statutory & Taxation screen. Press CTRL + A to finally save the options that we have enabled. This is important.

Congratulations! You have successfully enabled reverse charge mechanism in Tally ERP 9.

Now that you have enabled GST reverse charge mechanism in tally, let us see how you can actually pass the reverse charge entry in tally with GST.

How to Pass GST Reverse Charge Entry in Tally ERP 9

For passing GST reverse charge entry in tally, we will take the example of Goods Transportation Agency that we have already discussed.

Let me put the example once again for passing the accounting entry in tally.

You are a GTA and you have provided me the GST services of ₹60,000 + 5% GST to me. I am registered GST person.

For this example, we will take your name as GTA.

So, let us start with the entry along with the example.

GST Purchase Entry under Reverse Charge in Tally ERP 9

Now, one more setting is required, which is Accounting Invoice. Since you are providing me services, we have to use Accounting Invoice instead of Item Invoice.

Purchase Voucher in Tally – Accounting Invoice

Purchase Voucher in Tally - Accounting Invoice
Purchase Voucher in Tally – Accounting Invoice
  • Press ALT + I which is the shortcut for Accounting Invoice.
  • Enter the appropriate date and voucher number.
  • Enter the supplier invoice number and date.
  • Under the Party A/c, I will enter GTA because I am purchasing transportation services from you.
  • For Particulars, I will enter GTA services as I am purchasing it from you.
  • Enter the amount as ₹60,000.
  • Press Enter and save the voucher.
GST Reverse Charge Purchase Voucher in Tally for Transportation Services
GST Reverse Charge Purchase Voucher in Tally for Transportation Services

In the above entry, we didn’t use the GST taxation ledgers in tally because it is a reverse charge entry.

But, if you print the invoice, you will see the ₹3,000 as GST applicable but subject reverse charge.

GST Reverse Charge Printed Invoice in Tally
GST Reverse Charge Printed Invoice in Tally

Now, before we proceed further, let us see ledgers that we have used in the above entry.

  • GTA under Sundry Creditors with GST configuration.
  • GTA Services under Purchase Accounts with GST configuration and Reverse Charge enabled as seen in the picture below.
GTA Services Ledger - GST Reverse Charge Settings in Tally
GTA Services Ledger – GST Reverse Charge Settings in Tally

You can learn here how to create necessary ledgers along with GST configuration below.

Once you have passed the reverse charge entry in tally, you can go to GSTR-2 in tally and check it as I have shown in the picture below.

GST Reverse Charge Purchase Entry in Tally in GSTR-2
GST Reverse Charge Purchase Entry in Tally in GSTR-2

Now, we will need to record GST of the above entry because it was a reverse charge transaction and we have not recorded GST in the purchase invoice.

We need to separately record it. Here is how you can do it in tally.

Self Creation of GST Liability under Reverse Charge Mechanism in Tally

  • From Gateway of Tally, go to Accounting Vouchers.
  • Now select Journal voucher in Tally.
  • Press ALT + J or click on Stat Adjustment from the right hand side green bar.
  • Then, in the first option, select GST.
  • In the second option – Nature of Adjustment – select Increase of Tax Liability.
  • In the 3rd option, select – Purchase under Reverse Charge. You will see the options that we have selected on the top of the voucher.
Statutory Adjustment for increasing tax liability in Tally
Statutory Adjustment for increasing tax liability in Tally
  • On the Debit or By Side, select Advance Under Reverse Charge as the ledger and the amount will be ₹3,000.
  • On the Credit Side or To Side, we will enter both the CGST and SGST ledgers and ₹1,500 for each CGST and SGST.
Increase of Tax Liability under Reverse Charge in Tally ERP 9
Increase of Tax Liability under Reverse Charge in Tally ERP 9
  • Press Enter a few times and save the entry.

Congratulations! You have successfully created the liability for reverse charge on GST.

This is because under reverse charge we are liable to pay the GST even if we have bought the services or goods.

Since GST cannot be added to the invoice value, we have to create it in another entry as we just did.

The ledger – Advance Under Reverse Charge is to be created under Current Assets in Tally.

Note – Learn what to select the under option while creating any ledger in tally.

It is a temporary ledger. It is because we are self creating the GST liability and then once we take the credit of it, the ledger will be squared off.

That means the balance of the ledger – Advance Under Reverse Charge will be zero at the end of all the entries for reverse charge mechanism in tally.

Advance Under Reverse Charge Ledger is created under Current Assets because we are giving money in advance as GST under reverse charge till the time we use it as a credit under GST.

In other words, we treat it as a short term loan given to the government under the reverse charge.

Okay. Let’s move on.

Once the liability is created under reverse charge in tally, 2 more steps are remaining. They are:

  1. Payment of the liability under reverse charge in GST.
  2. Taking the credit of the reverse charge liability under GST in tally.

We have already created the liability. Now, we will pay the liability, so we need to pass the payment entry of GST.

GST Payment Entry under Reverse Charge Mechanism in Tally

  • In the Payment Voucher in Tally, select Stat Payment or press ALT + S.
  • Select GST in the first option.
  • For Period From – select appropriate period either monthly or quarterly.

In Payment Type – select Recipient Liability.

Stat Payment options for Reverse Charge under GST in Tally
Stat Payment options for Reverse Charge under GST in Tally
  • On the Debit Side, select CGST and SGST ledgers and enter the amount of ₹1,500 in each of them.
  • On the Credit Side, select Bank ledger and enter the amount of ₹3,000.
Statutory Payment for GST under Reverse Charge in Tally ERP 9
Statutory Payment for GST under Reverse Charge in Tally ERP 9

There will be GST details which you can fill up like UTR no and Challan Identification Number (CIN).

GST Details for Payment of GST under Reverse Charge in Tally ERP 9
GST Details for Payment of GST under Reverse Charge in Tally ERP 9
  • Press Enter a few times and save the entry.

Congratulations! You have successfully passed the payment entry for GST under reverse charge in Tally.

Now, the third and the final step is to create a journal entry in tally for taking the credit of the GST that we have paid under the reverse charge.

GST Credit Entry under Reverse Charge Mechanism in Tally

So, let’s do it!

  • In Accounting Vouchers, select Journal Voucher or press F7.
  • Click on Stat Adjustment or press ALT + J.
  • Select GST in the first option.
  • In the 2nd option, select – Increase of Input Tax Credit.
  • For the 3rd option, select – Purchase Under Reverse Charge.
Stat Adjustment for Increasing GST Input Tax Credit in Tally ERP 9 under Reverse Charge
Stat Adjustment for Increasing GST Input Tax Credit in Tally ERP 9 under Reverse Charge
  • Now, on the Debit Side or By Side, CGST and SGST ledgers as we are taking GST credit in tally which is our asset. Assets are on the debit side. Amount will be ₹1,500 for each ledger.
  • On the Credit Side or To Side, select the ledger Advance Under Reverse Charge and enter the amount of ₹3,000.
Increase of GST Input Tax Credit in Tally ERP 9 under Reverse Charge
Increase of GST Input Tax Credit in Tally ERP 9 under Reverse Charge
  • There is an option for providing GST details in which you can enter the period for which you are taking the credit. Mention the month or quarter as per your GST registration.
  • Press Enter a few times and save the entry.

Congratulations! You have successfully passed the RCM entry in tally for taking the credit of the GST that you have paid under the reverse charge.

Checking GSTR-3B for GST Reverse Charge in Tally ERP 9

We have done all the entries in regarding GST RCM entries in Tally. 

We have taken transportation charges so it is basically a classic example of transportation RCM entry in tally.

Now, we will go and see GSTR-3B in Tally to see the effects of our transactions.

  • From Gateway of Tally, go to Display.
  • Then select Statutory Reports.
  • Go to GST.
  • Select GSTR-3B from the list.
  • Press ALT + F2 and select the appropriate period for which the above entries were passed otherwise, nothing will show up.
  • Now, press ALT + F1 for detailed view.
  • In the row 3.1 – d for Inward Supplies (liable to reverse charge), you can see the entry that we have passed.
Checking GSTR-3B for GST Reverse Charge in Tally ERP 9
Checking GSTR-3B for GST Reverse Charge in Tally ERP 9
  • Press Enter and you can see all the details of RCM entry that we have done.
  • Come back to the GSTR-3B main screen and scroll down to 4A row – Eligible ITC.
  • Go to the 3rd point which states – Inward supplies liable to reverse charge (other than 1 & 2 above).
  • You can see it is duly recorded and showing in the GST return that our ITC is eligible which we have taken under the reverse charge.
Eligible ITC in GSTR-3B for Reverse Charge Inward Supplies
Eligible ITC in GSTR-3B for Reverse Charge Inward Supplies

Hence, we can see the effects of all the RCM accounting entries in GST in Tally, in GSTR-3B.

Even if you look in GSTR-2, you will find our reverse charge purchase entry that we have passed in the option of Reverse Charge Supplies.

As we pass the GST entries, it is also very important that they reflect in our GST returns as well and Tally does that perfectly.

Now, we will see how we can pass the reverse charge mechanism entry under GST when we are an unregistered dealer.

How to pass (Unregistered Dealer) URD Purchase Entry in Tally with GST

Basically, we are going to learn, passing a reverse charge purchase entry when we are buying from the unregistered dealer under GST.

But, but, but…

Before I show you the purchase entry, what if I tell you that the method is exactly the same as what we saw in the above RCM entries in tally.

Yes, everything is the same except choosing 2 small options.

Do you remember, in journal entries, we chose the option of Purchase Under Reverse Charge in Stat Adjustment as well as Stat Payment.

This option has to be changed and instead we need to choose the option of Purchase from Unregistered Dealer.

Look at the image below to see where the option needs to be changed.

Purchase from Unregistered Dealer under Reverse Charge in Tally ERP 9
Purchase from Unregistered Dealer under Reverse Charge in Tally ERP 9

Secondly, the person from whom we are purchasing is an unregistered dealer under GST. 

So, when we create a ledger of Sundry Creditor, we need to select Unregistered Dealer in the GST options or configuration while creating the ledger for sundry creditors.

Look at the picture below to see where you need to do the configuration.

Selecting Unregistered as a GST Registration Type for Sundry Creditors in Tally
Selecting Unregistered as a GST Registration Type for Sundry Creditors in Tally

That’s it. 

Other than the above two options, nothing needs to be changed and you can simply pass the URD purchase entry in tally in a speedy way.

GST Reverse Charge Entry in Tally – RCM in Tally – Free PDF Download – Video

GST Reverse Charge Entry in Tally – RCM in Tally – Free PDF Download – PDF

Download GST Reverse Charge in Tally PDF

Conclusion

We have seen in utmost detail the reverse charge mechanism in tally or RCM in tally.

Just remember this. GST reverse charge entry in tally consists of 3 steps after passing the purchase entry:

Create the purchase entry under reverse charge in tally.

  1. Create a liability using journal voucher because we are liable to pay GST under reverse charge.
  2. Pay the GST liability under reverse charge using payment voucher in tally.
  3. Create a journal voucher to take the credit of the GST paid under reverse charge.

We have specifically seen the transport or freight RCM entry together with the reverse charge in tally.

The entire procedure also applies when you purchase from an unregistered dealer.

Trying to see everything, we have seen the entire reverse charge mechanism of GST accounting entries in tally.

Still, it is possible that you may have doubts. Please comment below and I will be happy to help you.

I reply to each and every comment.

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