Reverse Charge GST: From Expense Ledger to Return Working

Review a ₹40,000 legal-service invoice and a separate freight invoice; test each supplier and service before selecting treatment. The useful result is a working that explains the facts, the calculation or classification, and the evidence behind the conclusion. This guide shows how to prepare that working and where a reviewer should investigate before accepting the result.

Scope and applicable period

Indian GST; apply the law, notification and return version for the transaction’s own period. The worked figures are illustrative, not a declaration of a newly notified rate.

Verification date: 11 October 2026. Figures and rates identified as assumptions are teaching examples; apply the stated conditions and the actual facts to a real assignment.

The key principle

Reverse charge depends on the notified supply, supplier and recipient conditions. An expense being unpaid, booked under professional fees or supplied by an unregistered person does not by itself establish RCM. Review the contract and invoice against the relevant notification. Payment of RCM and eligibility to claim input credit are separate tests: an expense may create a liability while its credit is restricted.

Worked example

Do not credit the supplier's account with tax that the supplier did not charge. Record the expense and supplier payable from the invoice, then separately recognise the recipient's liability where applicable. Match its cash payment to the return working. Claim credit only when the applicable conditions are satisfied; a circular journal entry does not prove eligibility. A useful register has distinct columns for liability period, cash payment and credit claim period.

A practical sequence

Scan the expense ledger for candidate services, then test each against the notified category and recipient conditions. Obtain supplier invoices and any declarations relevant to the treatment.

Prepare a liability working with the assumed rate replaced by the actual applicable rate. Link the cash payment to the return period, and claim credit only after independently checking eligibility and the relevant conditions.

Retain excluded items with reasons as well as included items.

Keep transaction facts and return treatment separate

GST work involves several linked questions: what was supplied, which registration is involved, when liability arises, how it is valued and whether credit is available. A correct accounting entry does not answer all of them. Build the working at invoice level wherever practical, with transaction dates and document references. Reconcile values and tax separately, including amendments and reversals. When a rule or rate changes, use the notified effective date and conditions for the actual transaction; a Council recommendation or a software master update is not, by itself, the legal commencement of the change.

Evidence checklist

Keep the following records linked to the same entity, period and working version. Identify missing items explicitly; a checked box should mean the document was examined and supports the stated conclusion.

• Invoice and service agreement
• Supplier identity and service classification
• Applicable RCM notification entry
• RCM cash-payment and return records
• Credit eligibility and supporting-document assessment

Common mistakes and how to avoid them

• Treating all unregistered purchases as RCM. Compare the conclusion with the invoice and service agreement and resolve any conflicting facts.
• Using existing ITC to pay an RCM liability. Trace the affected item to the applicable rcm notification entry before finalising the working.
• Claiming credit without checking restricted use. Use the credit eligibility and supporting-document assessment to make the final position and remaining exceptions clear.

Before you finalise

Recheck the example’s assumptions against the actual assignment, resolve the identified exceptions and make the final figure or conclusion traceable to its source. Preserve the reviewed version and the reason for material changes. For this task, the credit eligibility and supporting-document assessment should agree with the conclusion presented to the client, reviewer or authority.

Frequently asked question

Does paying RCM automatically make the credit available? No. Liability payment and input-credit entitlement must each be supported.

Sources and further reading

• GST Council — Notification 13/2017, services under reverse charge
• CBIC — electronic liability register and payment rules

Related guide: Blocked itc section 17 5 common expenses.