Reverse Charge Setup

Reverse Charge Setup

Reverse Charge Mechanism (RCM) in GST means the liability to pay tax is on the recipient of goods or services instead of the supplier. This guide will help you configure reverse charge setup in EquiBillBook.

Understanding Reverse Charge

Under normal circumstances, the supplier pays GST. Under Reverse Charge:

• The recipient (buyer) pays GST instead of the supplier
• Applies to specific goods and services as notified by the government
• Both supplier and recipient need to be registered under GST
• Recipient can claim input tax credit on RCM tax paid

When Reverse Charge Applies

Reverse Charge applies in the following scenarios:

Goods Under Reverse Charge

• Cashew nuts, bidi wrapper leaves, tobacco leaves
• Raw cotton, silk yarn
• Used vehicles, seized and confiscated goods
• Other goods as notified by the government

Services Under Reverse Charge

• Services provided by GTA (Goods Transport Agency)
• Legal services by advocate or firm
• Services by director of company
• Services by insurance agent
• Services by recovery agent
• Renting of motor vehicle
• Other services as notified

Unregistered Supplier

• When purchasing from unregistered supplier
• Recipient pays GST under reverse charge
• Applies if aggregate value exceeds threshold

Accessing Reverse Charge Setup

To configure reverse charge:

1. Navigate to Settings → Tax Settings → Reverse Charge Setup
2. You'll see options to enable and configure reverse charge
3. Set up reverse charge rules based on your business
4. Click "Save" to apply changes

Configuring Reverse Charge

Enable Reverse Charge

1. Go to Tax Settings → Reverse Charge Setup
2. Enable "Reverse Charge Mechanism"
3. Configure reverse charge settings
4. Save the configuration

Configure Reverse Charge Items

Mark items that are subject to reverse charge:

Method 1: Item-Level Configuration

1. Go to Items → Select the item
2. Navigate to Tax Settings
3. Enable "Reverse Charge Applicable"
4. Select reverse charge type (goods or services)
5. Save the item

Method 2: Category-Based Configuration

1. Go to Item Settings → Categories
2. Edit the category
3. Enable reverse charge for the category
4. All items in this category will have reverse charge

Configure Reverse Charge Suppliers

Mark suppliers that are subject to reverse charge:

1. Go to Suppliers → Select the supplier
2. Navigate to Tax Information
3. Enable "Reverse Charge Applicable"
4. Select reverse charge type
5. Save the supplier

Reverse Charge in Purchase Transactions

When creating purchase bills with reverse charge:

Purchase Bill Creation

1. Create a new Purchase Bill
2. Select supplier (if reverse charge applicable)
3. Add items (if reverse charge applicable)
4. System will automatically apply reverse charge
5. Tax will be calculated and shown separately

Reverse Charge Tax Display

• Reverse charge tax is shown separately in the purchase bill
• Tax amount is added to the total
• Tax is payable by you (recipient)
• You can claim input tax credit on this tax

Reverse Charge Tax Calculation

Reverse charge tax is calculated as:

For Goods

• Tax rate as applicable to the goods
• CGST + SGST for intra-state
• IGST for inter-state
• Tax is calculated on the taxable value

For Services

• Tax rate as applicable to the service
• CGST + SGST for intra-state
• IGST for inter-state
• Tax is calculated on the service value

Input Tax Credit on Reverse Charge

You can claim input tax credit on reverse charge tax paid:

Eligibility

• Tax must be paid under reverse charge
• Goods/services must be used for business purposes
• Proper documentation must be maintained
• Tax must be paid and return filed

Claiming ITC

• ITC is available in the same month as payment
• Can be utilized against output tax liability
• Subject to normal ITC conditions
• Must be reflected in GSTR-3B and GSTR-2A

Reverse Charge Compliance

Reverse charge transactions require special compliance:

Invoice Requirements

• Invoice must mention "Tax payable under reverse charge"
• Supplier's GSTIN must be mentioned
• Tax amount must be shown separately
• HSN/SAC code must be mentioned

Return Filing

• Reverse charge tax must be paid in cash (cannot use ITC)
• Must be reported in GSTR-3B
• Must be reported in GSTR-1 (if applicable)
• ITC on reverse charge must be claimed in GSTR-3B

Payment of Tax

• Tax under reverse charge is paid in cash
• Cannot be paid using input tax credit
• Must be paid by due date
• Interest applies on delayed payment

Best Practices

• Identify RCM Items: Clearly identify which items/services are under reverse charge
• Supplier Verification: Verify supplier registration status
• Proper Documentation: Maintain proper invoices and documentation
• Timely Payment: Pay reverse charge tax on time to avoid interest
• ITC Tracking: Track input tax credit on reverse charge
• Regular Review: Periodically review reverse charge transactions
• Compliance: Ensure proper compliance with RCM requirements

Common Scenarios

Scenario 1: Purchase from Unregistered Supplier

Purchasing goods worth ₹10,000 from unregistered supplier:

• Reverse charge applies
• You pay GST (e.g., 18% = ₹1,800)
• Total payable: ₹11,800
• You can claim ITC on ₹1,800

Scenario 2: GTA Services

Availing Goods Transport Agency services:

• Reverse charge applies on GTA services
• You pay GST on the service
• Tax rate as applicable to GTA services
• You can claim ITC on tax paid

Scenario 3: Legal Services

Availing legal services from advocate:

• Reverse charge applies on legal services
• You pay GST on the service
• Tax rate as applicable to legal services
• You can claim ITC on tax paid

Reverse Charge Reports

EquiBillBook provides reports for reverse charge:

Available Reports

• Reverse Charge Purchase Report: All purchases under reverse charge
• Reverse Charge Tax Report: Tax paid under reverse charge
• RCM ITC Report: Input tax credit on reverse charge
• RCM Compliance Report: Compliance status of reverse charge

What's Next?

After configuring reverse charge setup, you should:

1. Test reverse charge on sample purchase transactions
2. Verify tax calculations are correct
3. Set up proper documentation for RCM transactions
4. Configure compliance and reporting
5. Train your team on reverse charge handling

Proper reverse charge configuration ensures compliance with GST regulations and accurate tax calculations in EquiBillBook.