How to Set Up and Use RCM (Reverse Charge Mechanism) in TallyPrime

RCM (Reverse Charge Mechanism) in Tally allows you to record GST liability on the buyer's side for specified services. Enable it under F11 (Features), configure service categories and rates, and Tally will auto-calculate and report RCM in GSTR-3B for compliance.

What is RCM and Why It Matters in GST

Reverse Charge Mechanism (RCM) is a critical GST compliance rule where the buyer becomes responsible for paying and filing GST instead of the supplier. This applies to specific services and goods listed under GST Notification 10/2017 and subsequent amendments. If you are a registered business in India purchasing these services, you must understand RCM to avoid penalties and ensure correct tax filing.

RCM applies to services such as transportation, construction, legal advice, auditing, consulting, and goods transport. It also covers certain goods like scrap and waste materials. The mechanism exists to prevent tax evasion and ensure compliance in high-risk sectors. In TallyPrime, RCM is built into the GST module, making it easier to track, calculate, and report these transactions correctly.

RCM Services Covered Under GST Law

The GST Council has notified a comprehensive list of services and goods subject to RCM. These include:

• Transportation of goods by road (goods transport agencies)
• Construction services (labour and material supply)
• Legal and audit services
• Consulting and professional services
• Scrap and waste materials
• Goods supplied by unregistered dealers
• Services provided by non-resident entities
• Certain services from e-commerce operators

You should verify the current list on the GST Portal or consult your tax advisor, as the notification is updated periodically. In TallyPrime, you configure which service categories trigger RCM so that the system automatically applies the mechanism when you record a purchase invoice.

How RCM Works: A Practical Example

Let us walk through a real scenario. Suppose your company, ABC Traders, purchases construction services worth Rs 1,00,000 (excluding GST) from XYZ Builders on 15 January 2026. Construction services are subject to RCM at 5% GST (as per current law).

Particulars	Amount (Rs)
Service Value (Taxable)	1,00,000
GST Rate (RCM)	5%
GST Payable by ABC Traders (Buyer)	5,000
Total Invoice Amount	1,05,000

Under RCM, ABC Traders (the buyer) pays the invoice amount of Rs 1,05,000 to XYZ Builders. However, ABC Traders is responsible for paying the GST of Rs 5,000 to the government, not XYZ Builders. In TallyPrime, when you record this purchase with RCM enabled, the system automatically calculates the GST liability and records it separately so it appears in your GSTR-3B filing as RCM output tax.

Enabling RCM in TallyPrime: Step-by-Step

To use RCM in TallyPrime, you must first enable the feature under the statutory settings. Follow these steps:

1. Open TallyPrime and press F11 (Features) in the Gateway of Tally screen.
2. Navigate to Statutory and Taxation > GST Details.
3. Set Enable RCM (Reverse Charge Mechanism) to Yes.
4. Press Enter to confirm and save the setting.
5. Return to the Gateway and proceed to configure RCM rates and service categories.

Once enabled, TallyPrime will prompt you to define which service categories are subject to RCM and at what rate. This configuration ensures that when you create a purchase invoice for a service marked as RCM-applicable, Tally automatically calculates and records the GST liability on your side (the buyer's side) rather than the supplier's side.

Configuring RCM Rates and Service Categories

After enabling RCM, you need to set up the rates and service categories. In TallyPrime, go to Gateway of Tally > Statutory and Taxation > GST Details > RCM Rates. Here, you will define which services trigger RCM and at what percentage rate.

For example, if you purchase construction services, you would mark that service category as RCM-applicable with a 5% rate. Similarly, transportation services might be 5%, and certain other services could be at different rates depending on current GST law. Tally allows you to create multiple RCM rates for different service categories, and you can update them as the law changes.

You also need to create or update your supplier ledger accounts to flag them as RCM suppliers. When you record a purchase invoice from an RCM supplier, Tally will automatically apply the RCM calculation and record the GST on your books.

Recording RCM Purchase Invoices in Tally

When you record a purchase invoice for an RCM-applicable service, the process is straightforward in TallyPrime. Go to Gateway of Tally > Accounting Vouchers > Purchase (or press Alt+F5). Enter the supplier name, invoice details, and service description. If the supplier is marked as RCM-applicable and the service category is configured under RCM, Tally will automatically calculate and display the GST liability.

The key difference from a normal purchase is that the GST amount appears as a liability on your books (output tax) rather than as input credit. You do not claim ITC on the service value itself; instead, you pay the GST to the government under RCM. However, if the service is used for making taxable supplies, you can claim the GST as input credit in your GSTR-2B and reconcile it with the supplier's GSTR-1.

Understanding RCM and Input Tax Credit (ITC)

A common question is whether you can claim input credit on RCM purchases. The answer is yes, but with conditions. If the RCM service is used for making taxable supplies (i.e., you use it in your business to generate revenue), you are eligible to claim the GST paid under RCM as input credit. However, if the service is used for exempt supplies or personal use, you cannot claim the credit.

In TallyPrime, when you enable RCM and record the purchase, the system calculates the GST as output tax (liability). Later, when the supplier files their GSTR-1, they will report the transaction as a nil-rated or exempted supply (since they did not collect GST). You, as the buyer, will see this transaction in your GSTR-2B. You can then reconcile it and claim the input credit if the conditions are met. This reconciliation is crucial for accurate GST compliance.

RCM in GSTR-3B Filing

When you file your monthly GSTR-3B, RCM transactions appear in Schedule 2 (Outward Supplies) or as a separate RCM section, depending on your filing category. The GST you paid under RCM is shown as output tax (tax payable). In TallyPrime, you can generate your GSTR-3B directly from the GST Reports module. Press Alt+G (Gateway of Tally) > Display More Reports > GST Reports > GSTR-3B.

Tally will auto-populate all RCM transactions and calculate the total output tax, input credit, and net GST payable. You can review the report, make adjustments if needed, and then file it with the GST Portal. This integration ensures that your RCM compliance is accurate and timely.

RCM and GSTR-2B Reconciliation

GSTR-2B is the auto-populated ITC register that the GST Portal generates based on suppliers' GSTR-1 filings. For RCM transactions, your supplier will report the sale as nil-rated or exempted (since they did not charge GST). You, as the buyer, will see this in your GSTR-2B. To claim the RCM GST as input credit, you need to reconcile the transaction manually in your books and then in the GST Portal.

In TallyPrime 6.x and later, you can use the GSTR-2B reconciliation feature to match your purchase invoices with the supplier's GSTR-1. This helps you identify RCM transactions and ensure they are correctly recorded for ITC claim. The process involves comparing your purchase ledger with the GSTR-2B data and making adjustments as needed.

RCM Compliance and Common Mistakes

Several businesses make mistakes when handling RCM, leading to penalties and interest. Common errors include:

• Not enabling RCM in TallyPrime, causing GST to be recorded incorrectly.
• Failing to identify RCM-applicable services and treating them as normal purchases.
• Claiming input credit on RCM GST when the service is used for exempt supplies.
• Not reconciling RCM transactions with the supplier's GSTR-1 in GSTR-2B.
• Paying RCM GST but not reporting it in GSTR-3B, leading to mismatch notices.

To avoid these mistakes, ensure that RCM is enabled in your TallyPrime setup, configure the correct service categories and rates, and reconcile your transactions regularly. Review your GSTR-3B before filing to verify that all RCM amounts are correct.

RCM for Non-Resident Suppliers

RCM also applies when you purchase services from non-resident entities (suppliers outside India). In such cases, the buyer is responsible for paying GST under RCM, as the supplier is not registered in India. In TallyPrime, you can create a non-resident supplier ledger and mark it as RCM-applicable. When you record the purchase invoice, Tally will calculate the GST liability on your side.

This is particularly relevant for businesses that outsource services to international vendors. You must ensure that the RCM GST is paid to the government on time and reported in your GSTR-3B to maintain compliance.

Updating RCM Rates in TallyPrime

GST rates and RCM applicability can change with government notifications. TallyPrime allows you to update RCM rates and service categories without affecting past transactions. Go to F11 (Features) > Statutory and Taxation > GST Details > RCM Rates and modify the rates as needed. You can set effective dates for rate changes so that Tally applies the correct rate based on the invoice date.

It is good practice to review GST notifications quarterly and update your Tally setup accordingly. This ensures that your compliance is always current and you avoid penalties due to outdated rates.

Integration with Connected GST and e-Invoicing

If you have enabled GST in TallyPrime and are using connected GST services, RCM transactions can be integrated with e-invoicing. When you generate an e-invoice in TallyPrime, the system includes RCM details in the IRN (Invoice Reference Number) and QR code. This ensures that the transaction is flagged as RCM in the GST system and is visible to the supplier when they file their GSTR-1.

This integration improves transparency and reduces discrepancies between buyer and supplier records. It also helps the GST authorities track RCM compliance across the economy.

Data Backup and Troubleshooting RCM Issues

If you encounter issues with RCM calculations or reporting in TallyPrime, the first step is to back up your data. Then, go to F1 (Help) > Troubleshooting > Repair (or Alt+Y > Data > Repair) to scan and fix any data inconsistencies. This tool can resolve issues with GST and RCM calculations caused by incomplete or corrupted entries.

If the problem persists, contact your Tally support provider or a Tally 3 Star Certified Partner. They can review your setup, identify the root cause, and help you correct the configuration.

Choosing the Right TallyPrime Version for RCM

RCM is supported in both TallyPrime Silver and Gold versions. If you are a sole proprietor or small business with limited users, TallyPrime Silver (Rs 22,500 + 18% GST) is sufficient and includes RCM functionality. For larger businesses with multiple users on a LAN, TallyPrime Gold (Rs 67,500 + 18% GST) offers unlimited user licenses and better performance. Both versions include one year of Technical Support Services (TSS) free, which covers updates and connected services like RCM and e-invoicing.

You can also opt for Tally on Cloud, which provides secure access from any device and includes daily backups, making it ideal for remote teams managing RCM compliance across locations.

Key Takeaways on RCM in Tally

RCM is a critical GST compliance requirement for businesses purchasing specified services. In TallyPrime, enabling and configuring RCM is straightforward and ensures that your GST liability is recorded correctly on the buyer's side. By following the steps outlined above, you can set up RCM, record transactions accurately, and file compliant GSTR-3B and GSTR-2B reports. Regular reconciliation and staying updated with GST notifications will help you maintain compliance and avoid penalties.

If you are running a business in Purnea, Bihar, or nearby regions and need expert help setting up RCM in TallyPrime, Global IT Care is a Tally 3 Star Certified Partner with over 15 years of experience. We offer complete GST setup, RCM configuration, and ongoing support to ensure your compliance is accurate and timely. Contact us today at +91 75469 00951 to schedule a free consultation and get your RCM setup done right.