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What is Reverse Charge Mechanism

Bhavesh (Accounts) (158 Points)

02 April 2023

What is RCM, and when the same is applied. What accounting entry has to be passed for the same in books of accounts. please guide related to RCM.

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(Guest)

Reverse Charge Mechanism is a GST which is paid by service recipient & takes the input credit of that RCM Amount by Recipient.
If A takes the service of transport from B & B issue the transport charges invoice to A without GST then A has to pay RCM on that charges @ 5% & A is eligible to take the credit also of that RCM in GST Return.
Entry-1
DR Transport Charges A/c ________ 100
DR RCM Credit A/c___________________5
CR RCM Payable A/c_________________5
CR Transport Creditor A/c__________100
Entry-2
DR RCM Payable A/c__________________5
CR Bank A/c___________________________5
Entry-3
DR Input CGST A/c__________________2.5
DR Input SGST A/c__________________2.5
CR RCM Credit A/c____________________5

RCM is to be paid on Transport Charges or Advocate Fees also.

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prasad Nilugal ( GST Practitioner & Accounts ) (14807 Points)
Replied 02 April 2023

Reverse Charge Mechanism means GST is deposited by the recipient of Goods or services in Govt Account, normally or in forward charge . GST is collected by the supplier from recipient and deposit in to Govt account
Reverse Charge Mechanism is applicable as per section 9(3) and section 9(4) of the CGST Act. 2017 .
For example Legal services was taken by the XYZ Company from Advocate where the RCM is applicable. So RCM entities in the books of XYZ will be as follows

Legal Expenses A/c Dr
Input CGST RCM. A/c Dr
Input SGST RCM A/c Dr
To Output CGST RCM A/c Cr
To Output SGST RCM A/c Cr
To Advocate. A/c Cr
( RCM payable for legal services)

payment of RCM entry in Govt Account

Output CGST RCM A/c Dr
Output SGST RCM. A/c Dr
To Bank A/c Cr
( RCM payment entry)

Input tax credit of RCM entry

Input CGST A/c Dr
Input SGST A/c Dr
Input CGST RCM A/c Cr
Input SGST RCM A/c Cr
( Entry for ITC )
ITC available only after payment of RCM

Payment to Advocate entry

Advocate A/c Dr
To Bank A/c Cr
( payment entry)

You have to create all RCM ledgers

1 Like

(Guest)

Agreed with Mr.Prasad,As Detailed enteries are correct enteries & creates better presentation also.

Bhavesh (Accounts) (158 Points)
Replied 02 April 2023

Originally posted by : prasad Nilugal
	Reverse Charge Mechanism means GST is deposited by the recipient of Goods or services in Govt Account, normally or in forward charge . GST is collected by the supplier from recipient and deposit in to Govt account Reverse Charge Mechanism is applicable as per section 9(3) and section 9(4) of the CGST Act. 2017 . For example Legal services was taken by the XYZ Company from Advocate where the RCM is applicable. So RCM entities in the books of XYZ will be as follows Legal Expenses A/c Dr Input CGST RCM. A/c Dr Input SGST RCM A/c Dr To Output CGST RCM A/c Cr To Output SGST RCM A/c Cr To Advocate. A/c Cr ( RCM payable for legal services) payment of RCM entry in Govt Account Output CGST RCM A/c Dr Output SGST RCM. A/c Dr To Bank A/c Cr ( RCM payment entry) Input tax credit of RCM entry Input CGST A/c Dr Input SGST A/c Dr Input CGST RCM A/c Cr Input SGST RCM A/c Cr ( Entry for ITC ) ITC available only after payment of RCM Payment to Advocate entry Advocate A/c Dr To Bank A/c Cr ( payment entry) You have to create all RCM ledgers

Hello Prasad, thanks for your insight on RCM I want to know what if an service Fee received from Foreign Company weather RCM is applicable or not. We import a goods from Debeers and also receive a service from them what entry to should be passed or whether RCM is applicable or not.

prasad Nilugal ( GST Practitioner & Accounts ) (14807 Points)
Replied 03 April 2023

In Case of Import section 5(4) of the IGST Act and notification 10/2017 dt 28/6/2017 applicable. For Imports entries will be same only IGST will applicable .

Import purchase A/c Dr
Input IGST RCM A/c Dr
To Output IGST RCM A/c Cr
To Overseas Creditors A/c Cr
( Import purchase under RCM)

RCM payment entry

Output IGST RCM A/c Dr
To Bank A/c Cr
( RCM payment entry)

If Input tax credit is available then entry will be.

Input IGST A/c Dr
To Input IGST RCM A/c Cr
( ITC entry)

Payment to Overseas Creditors

Overseas Creditors A/c Dr
To Bank A/c Cr
( payment entry)