Accounting for reverse charge transactions in Tally Prime often creates confusion because a single purchase requires multiple accounting steps. Unlike regular forward charge purchases where tax is debited directly to duties and taxes on the supplier invoice, reverse charge requires recording the inward supply, accounting for the tax liability, paying tax through cash, and then availing the eligible credit.
Statutory basis for reverse charge entries
Under Section 2(98) of the CGST Act, reverse charge means the liability to pay tax rests with the recipient of goods or services instead of the supplier under Section 9(3) or Section 9(4). For inward supplies received from unregistered suppliers, Section 31(3)(f) of the CGST Act read with Rule 36(1)(b) of the CGST Rules mandates that the recipient issue a self-invoice to substantiate the credit claim.
In addition, under Table 6.1 of the GSTN manual for Form GSTR-3B, tax payable under reverse charge must be discharged exclusively in cash through the electronic cash ledger. It cannot be adjusted against existing input tax credit balances.
Common mistake: Attempting to pay reverse charge liability using input tax credit balances. Section 49 of the CGST Act and the GST portal rules mandate that reverse charge tax must be paid in cash. Once paid, the tax qualifies as input tax under Section 2(62) of the CGST Act and can be availed as ITC in Table 4(A)(3) of Form GSTR-3B.
Configuring master ledgers in Tally Prime for RCM
Before recording transactions, ensure your expense ledger and tax ledgers are properly configured in Tally Prime:
- Expense or service ledger: Go to Gateway of Tally > Create > Ledger. Under statutory details, set GST Applicable to Applicable. Set Set/Alter GST Details to Yes. In the GST Details screen, set Nature of Transaction to Purchase Taxable (or appropriate nature) and set Is reverse charge applicable? to Yes. If this option is not visible, press F12 and enable reverse charge calculations.
- Supplier ledger: For unregistered suppliers, select Registration Type as Unregistered. For registered suppliers subject to specific RCM notifications, select Regular.
- Tax ledgers: Create RCM Tax Ledgers (such as RCM CGST, RCM SGST, or RCM IGST) under Duties & Taxes, or use separate liability and input credit ledgers to maintain audit trails.
Step-by-step voucher workflow in Tally Prime
A complete RCM transaction cycle in Tally Prime involves three distinct vouchers:
Step 1: Record the inward purchase voucher
Record the inward purchase or expense invoice without charging GST directly to the supplier:
- Open Gateway of Tally > Vouchers > press F9: Purchase (or Accounting Invoice mode via Ctrl+H).
- Select the Supplier Ledger in Party A/c name and enter supplier invoice details.
- Select the RCM-enabled expense ledger. Enter the taxable amount. Notice that tax amounts are not debited to the supplier balance because the supplier cannot collect GST under reverse charge.
- Press Ctrl+O: Related Reports > GST - Tax Analysis (or Alt+A) to verify that Tally Prime shows reverse charge applicable on the value. Save the voucher.
Step 2: Raise tax liability in books
To reflect the tax liability in your financial statements and Form GSTR-3B Table 3.1(d):
- Go to Gateway of Tally > Vouchers > press F7: Journal.
- Click Alt+J: Stat Adjustment on the right-hand panel.
- In the Stat Adjustment screen, select:
- Type of duty/tax: GST
- Nature of adjustment: Increase of Tax Liability
- Additional details: Purchase Under Reverse Charge
- Debit Tax on RCM (Current Asset / Suspense) and credit Output CGST / SGST (Duties & Taxes).
- Save the voucher. This entry populates Table 3.1(d) in Form GSTR-3B reports in Tally Prime.
Step 3: Pay tax and claim input tax credit
Discharge the tax via Form GSTR-3B using cash ledger funds. In Tally Prime, book the corresponding input tax credit:
- Press F7: Journal > click Alt+J: Stat Adjustment.
- Select Type of duty/tax: GST.
- Select Nature of adjustment: Increase of Input Tax Credit.
- Select Additional details: Purchase Under Reverse Charge.
- Debit Input CGST / SGST and credit Tax on RCM (Current Asset / Suspense).
- This entry books the eligible ITC into Table 4(A)(3) of Form GSTR-3B.
Worked example: legal services under RCM
Consider an enterprise, ABC Traders in Maharashtra, receiving legal consultancy services from an advocate firm worth ₹50,000. Under Notification No. 13/2017-Central Tax (Rate), legal services attract reverse charge at 18% (CGST 9% and SGST 9%).
The mathematical calculation of liability and credit is structured as follows:
| Component | Calculation formula | Amount (₹) | Accounting / GST Treatment |
|---|---|---|---|
| Taxable supply value | Consultancy fee | ₹50,000 | Credited to Advocate firm ledger (F9 Purchase) |
| CGST @ 9% | ₹50,000 × 9% | ₹4,500 | Liability raised via F7 Stat Adjustment; payable in cash |
| SGST @ 9% | ₹50,000 × 9% | ₹4,500 | Liability raised via F7 Stat Adjustment; payable in cash |
| Total cash outflow for tax | ₹4,500 + ₹4,500 | ₹9,000 | Discharged via electronic cash ledger in Form GSTR-3B |
| Eligible ITC claimed | CGST ₹4,500 + SGST ₹4,500 | ₹9,000 | Availed in Table 4(A)(3) of Form GSTR-3B via F7 Stat Adjustment |
ABC Traders pays ₹50,000 to the advocate without deduction of GST. In the same tax period, ABC Traders pays ₹9,000 through the cash ledger in Form GSTR-3B under Table 3.1(d) and simultaneously claims ₹9,000 credit in Table 4(A)(3), resulting in neutral tax impact when credit is fully eligible.
Reconciling RCM in Form GSTR-2B with Tally Prime books
When goods or services are received from registered suppliers under RCM (such as registered Goods Transport Agencies or security agencies), the supplier reports the transaction in Form GSTR-1 with the reverse charge flag set to Yes. This transaction flows automatically into your Form GSTR-2B under the reverse charge inward supplies table.
Discrepancies arise if the supplier fails to flag the invoice as reverse charge, or flags a regular forward charge invoice as RCM by mistake. Regularly reconciling your Tally Prime purchase register against Form GSTR-2B prevents misstatements in Form GSTR-3B. For a comprehensive walkthrough on comparing software registers with portal statements, read our GSTR-2B reconciliation Tally Prime guide.
Frequently asked questions
Can reverse charge tax liability be adjusted using ITC in Tally Prime?
No. Under GST rules, reverse charge liability cannot be set off against accumulated input tax credit. It must be discharged in cash through the electronic cash ledger before input tax credit can be claimed in Table 4(A)(3) of Form GSTR-3B.
Which GSTR-3B tables reflect reverse charge transactions recorded in Tally Prime?
In Form GSTR-3B, the outward tax liability on reverse charge inward supplies appears in Table 3.1(d). Once the tax liability is booked and paid, the corresponding credit is claimed under Table 4(A)(3) as inward supplies liable to reverse charge.
Is self-invoicing compulsory for RCM purchases from unregistered suppliers?
Yes. Under Section 31(3)(f) of the CGST Act, a registered recipient receiving supplies taxable under reverse charge from an unregistered supplier must issue an invoice. Rule 36(1)(b) specifies that this invoice serves as the primary document to support input tax credit claims.
Check your reverse charge entries against GSTR-2B
Verify whether registered suppliers have correctly marked RCM invoices in their returns before you file Form GSTR-3B. Your GSTR-2B and purchase register files are read in your browser and never uploaded to any server.
Last checked: 25 October 2026. Sources: CBIC Tax Information Portal, GSTN Form GSTR-3B Manual.