Glossary GST
Reverse charge (RCM)
Definition
Reverse charge is a GST rule under which the buyer, not the seller, pays the tax on certain notified supplies directly to the government.
Example
A Jaipur law firm bills a registered trading company ₹50,000 for legal advice without charging GST, because legal services from an advocate are under reverse charge. The trading company pays the GST itself in cash through GSTR-3B and, if eligible, claims it back as ITC in the same return.
Reverse charge in TallyPrime and in Cashflow OS
Where to find itIn TallyPrime
In TallyPrime the purchase or expense ledger can be marked as liable to reverse charge, so the voucher records the tax as a liability. The reverse charge liability and related credit then show in its GSTR-3B report.
On your phoneIn Cashflow OS
Cashflow OS shows a GSTR-3B view prepared from the synced Tally data, so reverse charge entries appear as Tally records them; the tax is paid on the GST portal.
See how it works
Common misunderstandings
- Watch outTrying to pay reverse charge tax from existing ITC. It must be paid in cash.
- Watch outNot raising a self-invoice when the supplier is unregistered.
When reverse charge applies
There are two kinds. The first is a notified list of goods and services where the buyer always pays, whoever the supplier is. Common examples for small businesses are goods transport by a goods transport agency (where the GTA has not opted to charge tax itself), legal services from an advocate, sponsorship, services from a director, and renting of commercial property by an unregistered landlord to a registered tenant. The second is purchases from unregistered suppliers, which is limited to notified cases. The lists are changed by notification from time to time, so check the current ones on cbic-gst.gov.in. Our guide on the reverse charge mechanism has more detail.
Example
A distributor pays a GTA ₹20,000 freight for a month. The GTA charges no GST because it has not opted for forward charge. The distributor pays GST under reverse charge at the applicable rate (5% gives ₹1,000) in cash through GSTR-3B. It raises a self-invoice for the purchase and a payment voucher when paying. If the freight is for business use, the same ₹1,000 can be claimed as input tax credit in that return, so the net cost is nil, but the cash payment cannot be skipped. Reverse charge tax cannot be paid using existing ITC.
For more on transport, see GST on goods transport.
Where it shows up in TallyPrime
In TallyPrime the expense or purchase ledger is marked as liable to reverse charge, and the purchase voucher records the tax as a liability rather than as tax paid to the supplier. TallyPrime then shows the reverse charge liability in its GSTR-3B report and the related input credit. A separate journal or the tax payment voucher clears the liability when you pay.
This is general information, not tax advice.
Related terms
Input tax credit (ITC)GSTR-3BSAC codeComposition dealerAll terms A–Z
Questions about Reverse charge
Can I use ITC to pay reverse charge tax?
Does a composition dealer pay reverse charge?
Who issues the invoice under reverse charge?
Is freight paid to a transporter always under reverse charge?
Do I report reverse charge purchases in GSTR-1?
This page is general information for Indian businesses, not tax, legal or financial advice. Rules and rates change — check the official portals or your CA before acting.
