Reversing Tax Liability for Purchase Return of Services (RCM) in TallyPrime

When you receive services under the Reverse Charge Mechanism (RCM), you’re required to pay GST directly to the government.

But if you later return or cancel those services, you can reverse the tax liability proportionally.

This guide explains how to do that easily in TallyPrime with a simple, step-by-step example.

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1. What is Reverse Charge Mechanism?

In normal GST transactions, the supplier collects tax and pays it to the government.

But under RCM, the recipient (you) pays GST instead of the supplier.

This is common in cases such as:

• Legal services from advocates
• Goods Transport Agency (GTA) services
• Security services from an unregistered provider

When the service is cancelled or returned, the GST liability should also be reversed in your books.

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2. Example Scenario of Reversing Tax Liability for Purchase Return of Services (RCM) in TallyPrime

Let’s say:

• You received legal services worth ₹20,000 from an advocate
• GST under RCM was applicable at 18% (i.e., ₹3,600)
• You later cancel ₹8,000 worth of services

In this case, your GST liability should reduce by ₹1,440 (18% of ₹8,000).

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3. Step-by-Step Guide of Reversing Tax Liability for Purchase Return of Services (RCM) in TallyPrime in TallyPrime

Step 1: Enable GST and Reverse Charge

1. Press F11 (Features) → Statutory & Taxation
2. Set Enable Goods and Services Tax (GST) to Yes
3. Enable Reverse Charge Mechanism

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Step 2: Record the Original Purchase Under RCM

1. Go to Gateway of Tally > Vouchers > F9: Purchase
2. Party: Advocate (service provider)
3. Ledger: Select a Purchase – RCM ledger (created with reverse charge enabled)
4. Amount: ₹20,000
5. Do not select GST ledgers; Tally will calculate the liability as RCM

This transaction will reflect in GSTR-3B under reverse charge payable.

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Step 3: Create a Debit Note for Partial Return

Now you are cancelling part of the service worth ₹8,000.

1. Go to Gateway of Tally > Vouchers > Ctrl + F9: Debit Note
2. Select the same service provider
3. Select the same Purchase – RCM ledger
4. Enter ₹8,000 as the amount
5. In GST Details, confirm that Reverse Charge is applicable

Tally will automatically adjust the tax liability related to the returned value.

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Step 4: Verify in GST Reports

Go to:

• Gateway of Tally > Display More Reports > Statutory Reports > GST > GSTR-3B
• Check the section Liability under Reverse Charge

You will see the tax amount is now adjusted, showing only the net liability (₹3,600 – ₹1,440 = ₹2,160).

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4. Final Summary of Reversing Tax Liability for Purchase Return of Services (RCM) in TallyPrime

Particulars	Amount (₹)
Original Service (RCM)	20,000
GST Payable @18%	3,600
Service Cancelled (Return)	-8,000
GST Liability Reversed @18%	-1,440
Net GST Payable under RCM	2,160

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5. Conclusion

Reversing GST liability under RCM is simple in TallyPrime when services are returned. You only need to:

• Use a proper Debit Note
• Mark it under Reverse Charge
• Let Tally handle the tax reversal in reports

Always verify your GSTR-3B report before filing returns to ensure the reversed tax is correctly reflected.

This keeps your tax reporting accurate and prevents overpayment.

Let me know if you’d like a downloadable template or a demo file for practice.