I have a few questions and possibly some suggestions to improve the reverse charged tax codes.
why is there no option to enter a multi rate reverse charged tax code?
in our jurisdiction the taxes are split between the centre and state governments. therefore, we need to charge them separately just like our regular tax codes.
the reverse charged amount does not reflect anywhere as a liability on the Summary page. this would be very useful for majority of users.
an extract from the guide:
the above is only partially true (atleast wrt our tax laws). in our jurisdiction we cannot claim input credit of the reverse charged tax amount until we make a payment for the same to the tax authorities. this means we cannot offset the reverse charged tax amount with our regular input tax credits.
for this purpose a suggestion would be to have an automatic subaccount for reverse charge created to the default tax control account.
to illustrate an example, considering Tax payable as the default control account and RCM as a subaccount to Tax payable:
A) before reverse charge payment to tax authority
Tax payable: 100 Dr
RCM: 25 Cr
B) after reverse charge payment to tax authority
Tax payable: 125 Dr
RCM: 0
Implementing the above would also help showing the transaction in Tax Transactions report where currently the tax amount is not reported.
Reverse charged tax codes are 0% tax codes from accounting point of view.
You correctly claim that reverse charged tax code do not reflect anywhere on balance sheet but then you propose some entries being made into G/L after all.
this is true. but since the reverse charged taxes are a method to increase tax compliance, these are still tax transactions which need to be reported. and the present implementation do not report these tax values on any report except the Tax Summary.
yes. because as explained in my initial post, our tax laws do not allow us to offset the reverse charged taxes with our regular input credits and neither can we claim input of the reverse charged tax until we pay the same to the authorities.
this is explained in first paragraph on page 2 http://cbic.gov.in/htdocs-cbec/gst/Reverse%20charge%20Mechanism.pdf
so as per above, a taxpayer need to pay the reverse charged taxes from their pocket rather than offsetting the same with his available input credit. for the same reason this needs to be shown as a liability in Manager. after the reverse charges are paid, it would be available as an input credit which can be utilized normally.
