Reverse Charge Mechanism in Tally Prime

The Reverse Charge Mechanism (RCM) under GST is a provision where the recipient of goods or services is liable to pay GST instead of the supplier. This mechanism is applicable in specific cases, such as when a registered business receives services from an unregistered supplier or under certain goods and services. Tally Prime facilitates easy recording of transactions under RCM, ensuring compliance with GST regulations. In this article, we will walk you through the process of recording RCM transactions in Tally Prime with a real-world example.

1. What is Reverse Charge Mechanism (RCM)?

Under GST, the Reverse Charge Mechanism (RCM) shifts the responsibility of paying the GST from the supplier to the recipient of goods or services. This typically happens in scenarios where:

• The supplier is unregistered.
• The goods or services are specified by the government for RCM.

When RCM is applicable, the buyer (recipient) must pay the GST directly to the government instead of the supplier. In Tally Prime, businesses can easily manage such transactions by setting the right options.

2. Steps to Enable Reverse Charge Mechanism in Tally Prime

Before recording RCM transactions, ensure that RCM is enabled in your Tally Prime settings.

Step 1: Enable Reverse Charge Mechanism (RCM)

• Go to Gateway of Tally → F11: Features → Statutory & Taxation → Enable GST
• In the GST configuration, set Enable Reverse Charge to "Yes".
• Press Ctrl + A to save the configuration.

3. Creating RCM Tax Ledgers

To properly account for RCM transactions, you need to create appropriate tax ledgers in Tally Prime, such as CGST, SGST, and IGST, based on the applicable RCM rate.

Step 1: Create RCM Tax Ledgers

• Go to Gateway of Tally → Accounts Info → Ledgers → Create
• Choose the group Duties and Taxes to create tax ledgers for CGST, SGST, or IGST (depending on the transaction type).
• For CGST/SGST, select Type of Duty/Tax as "GST" and set the tax rate accordingly (e.g., 9% CGST and 9% SGST for intra-state transactions).
• For IGST, select Type of Duty/Tax as "GST" and set the tax rate (e.g., 18% IGST for inter-state transactions).

4. Recording Reverse Charge Mechanism (RCM) Transactions

Now that RCM is enabled and tax ledgers are set up, you can proceed to record GST-compliant transactions where the Reverse Charge Mechanism is applicable. The following steps will guide you through recording such transactions in Tally Prime.

Step 1: Recording Purchase under RCM (Intra-state)

Let’s assume you purchase goods worth ₹10,000 (exclusive of GST) from an unregistered supplier located within the same state. The GST rate applicable is 18% (9% CGST and 9% SGST). Since RCM applies, you will be responsible for paying the GST instead of the supplier.

• Voucher Type: Choose "Purchase" voucher from the voucher menu.
• Party Name: Enter the name of the supplier (unregistered supplier).
• Item: Select the item purchased (e.g., "Office Supplies").
• Amount: Enter the purchase amount (₹10,000).
• GST Details: Tally will calculate CGST and SGST (₹900 each), making the total tax ₹1,800, with a total purchase amount of ₹11,800.
• Reverse Charge (RCM): You must mark the purchase as under Reverse Charge. In the "GST Details" section, select Is RCM Applicable as "Yes".

Press Ctrl + A to save the entry.

Step 2: Recording Purchase under RCM (Inter-state)

If you purchase goods worth ₹10,000 (exclusive of GST) from an unregistered supplier located in another state, the applicable GST is 18% IGST. Since RCM applies, you will be responsible for paying IGST.

• Voucher Type: Choose "Purchase" voucher.
• Party Name: Enter the supplier's name.
• Item: Select the item being purchased.
• Amount: Enter ₹10,000.
• GST Details: Tally will calculate IGST as ₹1,800, making the total amount ₹11,800.
• Reverse Charge (RCM): Mark the purchase as under Reverse Charge. In the GST Details section, select Is RCM Applicable as "Yes".

Press Ctrl + A to save the entry.

5. Viewing RCM Transactions in Tally Prime

After recording RCM transactions, you can view these transactions in various reports within Tally Prime to ensure compliance.

Step 1: View Purchase Register

To view all RCM purchases, navigate to:

• Gateway of Tally → Display More Reports → Purchase Register

This will show a list of all purchases, including those under Reverse Charge. You can filter the report by RCM transactions.

Step 2: View GST Reports

To check the GST liability for RCM transactions, navigate to:

• Gateway of Tally → Display More Reports → Statutory Reports → GST Reports

Select the GSTR-3B or GSTR-1 report to view the RCM tax amounts under "Reverse Charge" for the selected period.

6. Summary

To summarize:

• RCM is applicable when the recipient is responsible for paying GST on behalf of an unregistered supplier or under specific cases defined by the government.
• In Tally Prime, you can enable RCM and mark transactions as RCM-eligible.
• RCM transactions need to be recorded with accurate GST details for CGST, SGST, or IGST based on the nature of the transaction.
• GST reports allow you to track and file RCM liabilities accurately.

7. Conclusion

The Reverse Charge Mechanism (RCM) ensures that the buyer, rather than the supplier, is responsible for paying GST in certain transactions. By following the steps in this article, you can easily record RCM transactions in Tally Prime and ensure GST compliance.