When your business deals with services that fall under Reverse Charge Mechanism (RCM), it’s important to record purchase returns accurately in TallyPrime.
This guide will walk you through the complete process in simple language with a clear example.
1. What is Reverse Charge for Services?
In a regular GST transaction, the supplier of services charges GST. But under RCM, the recipient (you) pays GST directly to the government.
This usually applies to services like:
- Legal services from an advocate
- Transportation from a Goods Transport Agency (GTA)
- Security services
When you return a service (for example, cancel a contract or reject a bill), you also need to reverse the GST liability.
2. Example Scenario of Purchase Returns of Services Under RCM in TallyPrime
Let’s say:
- You hired legal services from an advocate worth ₹10,000
- GST under RCM is 18% (CGST ₹900 + SGST ₹900)
- Total liability was ₹1,800
- You now cancel the service and return it in full
You must now reverse both the purchase amount and the RCM liability in TallyPrime.
3. Step-by-Step Process of Purchase Returns of Services Under RCM in TallyPrime
1. Enable GST and RCM in TallyPrime
- Go to F11 (Features) > Statutory & Taxation
- Set Enable Goods and Services Tax (GST): Yes
- Enable Set/alter GST details: Yes
- Set Enable Reverse Charge Mechanism: Yes
2. Create a Purchase Ledger for RCM Services
- Go to Accounts Info > Ledgers > Create
- Name: Legal Services – RCM
- Under: Purchase Accounts
- Set GST details:
- Applicable: Yes
- Nature of transaction: Taxable
- Reverse Charge Applicable: Yes
3. Create Tax Ledgers
Create CGST and SGST ledgers (if within state) or IGST (if interstate):
- Go to Accounts Info > Ledgers > Create
- Name: CGST @ 9%
- Under: Duties & Taxes
- Type: GST
- Tax Type: CGST
- Rate: 9%
Repeat the same for SGST or IGST.
4. Record Purchase Voucher under RCM
- Go to Gateway of Tally > Accounting Vouchers > F9: Purchase
- Party: Enter the Advocate’s name
- Purchase Ledger: Legal Services – RCM
- Amount: ₹10,000
- Do not select GST ledgers manually; Tally will show the tax in GST reports as payable under RCM
Tally does not apply the tax in this voucher but will calculate RCM in GSTR-3B.
5. Record a Debit Note for Service Return
Now let’s reverse the service using a Debit Note.
- Go to Gateway of Tally > Accounting Vouchers > Ctrl + F9: Debit Note
- Party: Select the same advocate
- Ledger: Legal Services – RCM
- Amount: ₹10,000
Tally will automatically reverse the GST RCM liability if RCM is enabled for this ledger.
4. Impact on GST Returns of Purchase Returns of Services Under RCM in TallyPrime
- In GSTR-3B, your reverse charge tax liability will now be reversed
- Your purchase values will reduce accordingly in reports
- This ensures compliance and accuracy in GST filing
5. Summary Table
| Transaction | Amount (₹) |
|---|---|
| Service Availed (RCM) | 10,000 |
| GST Payable under RCM (18%) | 1,800 |
| Return via Debit Note | -10,000 |
| GST Liability Reversed | -1,800 |
After the debit note is posted, your GST liability becomes zero.
6. Tips to Remember
- Always use a ledger marked for RCM when recording services under RCM.
- For returns, use debit notes, not journal vouchers.
- Review GSTR-3B before filing to verify correct entries.
By following these steps, you ensure that your GST books are clean and compliant with RCM regulations.
Let me know if you need a sample company setup or how this reflects in the GST reports inside Tally.
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