Guide to handle GST reverse charge on Suppliers

I need help in handling GST reverse charge on suppliers. As per the new GST if we buy goods or services from unregistered suppliers then we need to pay the GST on reverse charge basis.
If you can create a guide for this it will be great. Please include all steps until end as I am not accounting person.

this has not been implemented in Manager yet. it has already been discussed with the admin @lubos and we can expect the same to be released some time soon…

in the meantime you can just add the text Tax paid on reverse charge basis in the Desccription field.
create a new expense account in the chart of accounts under settings, say RCM Paid
then when making the purchase invoice add a new line, select this new account under the accounts column and enter the exact tax value as a negative value.


How do I generate report for monthly basis for filing of return of input.

thanks @sharpdrivetek let me see if this can solve the situation that i have now.
and hopefully this is implemented soon,
it is tough even when there is a single such transaction,

@sharpdrivetek can you explain the entry for Payment of GST when there is reverse charge? the credit on input that is shown in the portal may have to be entered in the E-Credit Ledger A/c, but what are the other adjustment entries for RCM Paid?

is this the way to go?

i had only given an idea earlier and accounting is not my cup of tea. it would be better if the other users good at accounting answer your question.

Firstly so that it is clearly understood, is the following correct.

  1. the GST gets deducted from the payment to the supplier (Invoice 100, GST 10%, Payment 90)
  2. the deducted GST gets added to the other “normal” GST with other suppliers.

Reverse charge, where the recipient is liable to pay tax, is common to many countries like Canada where it is applicable on imports of services and intangible properties. Normally, the supplier pays the tax on supply. In certain cases, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed which is why it is called reverse charge.

In India, this is a partly new concept introduced under GST. The purpose of this charge is to increase tax compliance and tax revenues. Earlier, the government was unable to collect service tax from various unorganized sectors like goods transport. Compliances and tax collections will therefore be increased through reverse charge mechanism.

The concept of reverse charge mechanism is already present in service tax. In GST regime, reverse charge may be applicable for both services as well as goods.

Reverse charge means the liability to pay tax is by the recipient of goods/services instead of the supplier.
Reverse charge may be applicable for both services as well as goods.
Situations where reverse charge will apply

Unregistered dealer selling to a registered dealer

In such a case, the registered dealer has to pay GST on the supply.

Services through an e-commerce operator

If an e-commerce operator supplies services then reverse charge will apply on the e-commerce operator. He will be liable to pay GST.

For example, UrbanClap provides services of plumbers, electricians, teachers, beauticians etc. UrbanClap is liable to pay GST and collect it from the customers instead of the registered service providers.

If the e-commerce operator does not have does not have a physical presence in the taxable territory, then a person representing such electronic commerce operator for any purpose will be liable to pay tax. If there is no representative, the operator will appoint a representative who will be held liable to pay GST.

you can get a better idea if you have the time to read this GST Reverse Charge : What & When Explained with Examples

relating to the entry that i provided, i had to make purchase invoices to myself, as i had bought the goods/services from unregistered dealer (URD)
so according to the suggested method, the purchase invoice looks like

and another purchase invoice of the total value of 300, CGST and SGST (@18%) Rs 27 each.

i had sales of Rs 1600 plus taxes @18% = Rs 1600 + 288 = Rs 1888

So my total tax liability is Rs 288 on sales + Rs 162 on purchases from URD
= Rs 450
out of which Rs 126 is being shown by Manager as my Tax Payable

the Rs 162 (tax on purchases from URD that i am liable to pay) would be given back in my GST E-Credit Ledger after I pay the full amount of Rs 450.
This paid back amount would be adjustable against future liabilities.

@spandan888 - thank you for going some way in answering my questions with your examples.

Fully understand the sales side - 288 payable
On the purchase side you have to calculate 162 (108 + 54) due to unregistered suppliers.

It appears from your comments that you have to pay this 162 initially and then it given back as a future adjustment. So based on the above we have a payment of 450 (288 +162) then an adjustment (which lets say gets refunded) so there’s a nett tax payment of 288 (288 +162 - 162).

Then you make the comment “of which 126 is being shown by Manager as my Tax Payable”
This implies that the nett tax payable is 126 (288 - 162), but that 162 never gets deducted as it gets paid and then refunded (= zero) so how does the Tax Payable get corrected, unless you are posting the refund adjustment back to the Tax Payable account.

This means that the Tax Payable account which has a balance of 126 at the end of the period doesn’t get cleared by a single 126 payment, instead it gets eventually cleared by a 288 payment (as the 162 is being paid from RCM Paid account) and a subsequent refund of 162.

Can I suggest that the reverse charge taxes be keep separate from the “normal” taxes (Tax Payable account) so that they can be more easily reconcilable.

However, looking back at your earlier Journal post, I can now see that you are sorting out that reconcilable situation with that entry. That will work.

In that earlier post you asked “but what are the other adjustment entries for RCM Paid?”
None - the RCM Paid account receives entries from the Purchase Invoices and then is cleared via the Journal entry.

The GST E Credit Ledger account Journal entry will be cleared via the future adjustment (refund).
The GST E Liability account Journal entry will be cleared via the payment to the tax authority.

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@Brucanna thank you very much for taking the time to understand, and then post a detailed reply.

The GST E credit ledger account is shown as an asset, which means that the 162 is given as a balance for future tax liabilities.

so it would get cleared during the next filing of returns (that is the return for august, these all were for july)
I also spoke to my tax consultant, and he said the journal entry was correct.
if there is any other suggestions, i am willing to listen…
also thanks to @sharpdrivetek for your suggestions.

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