How to Account for Reverse Charge Mechanism (RCM) in Tally Prime (2026)

Under normal GST, the supplier collects tax from you and pays it to the government. Under Reverse Charge Mechanism (RCM), that responsibility flips — you, the recipient, pay the GST directly to the government instead of the supplier. This applies to specific notified categories of goods and services, and certain situations like purchases from unregistered dealers in some cases.

Tally Prime can calculate and track RCM liability separately from your normal purchases, which matters because RCM tax is paid in cash, not offset against your regular input credit at the time of liability, and is generally claimed as credit only in a later step.

This guide covers configuring RCM in Tally Prime and recording the two-part transaction it requires.

What You Need Before You Start

• Tally Prime installed, with GST enabled — see our guide on how to create a GST invoice in Tally Prime
• A clear idea of which of your regular purchases or expenses fall under notified RCM categories (common examples include certain transport services (GTA), legal services from an advocate, and a few other notified categories — always confirm against the current notified list, since RCM categories are revised periodically)

Step 1: Enable RCM in Tally Prime

1. Gateway of Tally, then F11 (Features), then F3 (Statutory & Taxation)
2. Confirm GST is enabled
3. Look for the Reverse Charge or RCM-related option (the exact location can vary slightly by release) and set it to Yes if it isn’t already part of the default GST configuration
4. Press Ctrl+A to save

Step 2: Mark the Relevant Purchase Ledger as RCM-Applicable

1. Open or create the purchase/expense ledger for the relevant category (for example, “Legal Fees” or “GTA Freight Charges”)
2. Set GST Applicable to Yes
3. Look for an option indicating Is Reverse Charge Applicable and set it to Yes
4. Enter the applicable GST rate
5. Save

Step 3: Record the Purchase or Expense Transaction

1. Gateway of Tally, then Vouchers, then F9 (Purchase), or a Journal voucher depending on the transaction type
2. Select the supplier (or the relevant ledger if there’s no formal supplier invoice, such as in some unregistered-dealer scenarios)
3. Select the RCM-marked ledger for the expense
4. Tally Prime calculates the GST liability under reverse charge separately from your normal output/input tax
5. Save the voucher

At this stage, the GST shown is your liability to pay, not yet a credit you’ve claimed.

Step 4: Record the GST Payment Under RCM

1. The RCM liability needs to be paid in cash to the government, typically along with your regular GST payment cycle
2. This is reflected through your regular GST payment process — see how it factors into your GSTR-3B in our guide on how to file GSTR-3B from Tally Prime
3. Tally Prime tracks this liability separately so it shows clearly in your GST reports as RCM payable

Step 5: Claim Input Tax Credit on the RCM Amount Paid

1. Once you’ve paid the RCM liability, you can generally claim it as input tax credit, subject to the usual eligibility conditions (the expense must be for a business purpose and not fall under a blocked credit category)
2. This typically happens in the same or a subsequent return period, depending on when payment is actually made
3. Review your GSTR-3B input tax credit section to confirm the RCM-paid amount is reflected correctly

Step 6: Review RCM Reports

1. Gateway of Tally, then Display More Reports, then GST Reports
2. Look for a section covering Reverse Charge transactions, separate from your regular outward and inward supply summaries
3. Use this to verify all RCM-applicable transactions for the period have been correctly identified and tracked, since these are easy to miss if a ledger wasn’t marked correctly at setup

Common RCM Scenarios to Watch For

• Goods Transport Agency (GTA) services, where RCM commonly applies depending on the specific arrangement and registration status of the parties involved
• Legal services received from an individual advocate or firm of advocates
• Certain services received from a director of a company
• Purchases from unregistered dealers, in specific notified circumstances

Because the exact list and conditions for RCM applicability change from time to time, this is one area where it’s genuinely worth checking the current notified categories rather than relying on a static list, since misclassifying a transaction either way (treating something as RCM when it isn’t, or missing genuine RCM liability) creates compliance issues either direction.

Common Mistakes to Avoid

• Not marking the relevant purchase ledger as RCM-applicable, so the liability never gets calculated or tracked in the first place
• Forgetting to actually pay the RCM liability in cash, then trying to offset it against regular input credit instead, which isn’t how RCM payment works
• Claiming input credit on the RCM amount before it’s actually been paid
• Missing genuine RCM transactions because the expense was recorded under a generic ledger instead of one specifically configured for the RCM category
• Not periodically reviewing your RCM report, letting misclassified or missed transactions accumulate across several filing periods

FAQs

Does RCM apply to all purchases from unregistered dealers? Not universally — applicability depends on specific notified categories and conditions, which have changed over time. Check the current rules rather than assuming a blanket rule applies.

Can I offset RCM liability against my regular output tax liability? No. RCM liability must generally be paid in cash, separately from netting against your available input tax credit, and the credit is claimed as a separate subsequent step.

Is RCM the same as TDS under GST? No, they’re different mechanisms. RCM shifts the liability to pay GST itself from supplier to recipient. TDS under GST is a separate deduction requirement that applies to certain government and notified deductors on payments made to suppliers.

What happens if I miss recording an RCM transaction in the correct period? It can result in under-reported liability for that period. Depending on how late it’s identified, correction may involve interest along with the tax itself — consult your tax advisor for the specific correction approach.

Do composition scheme dealers also need to pay RCM? Yes, RCM liability generally applies regardless of whether the recipient is under the regular scheme or the composition scheme, though composition dealers cannot claim input tax credit on it the way regular taxpayers can.