Generally, the supplier of goods or services is liable to pay GST. However, in specified cases like imports and other notified supplies, the liability may be cast on the recipient under the reverse charge mechanism. Reverse charge means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply.

There are two type of reverse charge scenarios provided in law.

First is dependent on the nature of supply and/or nature of supplier. This scenario is covered by section 9 (3) of the CGST/ SGST (UTGST) Act and section 5 (3) of the IGST Act. This FAQ covers the steps for this scenario.

Second scenario is covered by section 9 (4) of the CGST/SGST (UTGST) Act and section 5 (4) of the IGST Act where taxable supplies by any unregistered person to a registered person is covered. Please use the steps listed in this FAQ, if you are purchasing a service or a product which is not inventory enabled. If you purchase an inventory enabled product from an un-registered supplier please visit the How to handle reverse charge when you purchase an INVENTORY ENABLED PRODUCT from an un-registered supplier in QuickBooks for GST (India only) FAQ for the steps for the second scenario.

In QuickBooks, while creating the service we update the reverse charge rate applicable for that service while purchasing. Let's say we need to create a new service "Manpower Supply" and enable reverse charge for this service, we would follow the steps given below:
  1. Select the Gear icon at the top > Products and Services
  2. Click on "New" button
  3. Click on Service section
  4. Enter the name of the service, here "Manpower Supply"
  5. Check the box which says " I purchase this product/service from a supplier."
  6. Enter the purchase cost of the service if you already know the rate
  7. Select an expense account for this service
  8. Under purchase tax drop down select the GST rate that is applicable
  9. Enter the percentage value of reverse charge, 100.
  10. Click "Save and close" button.

The Tax Service service will get created. Now we can use this in our bills/expense entries.

NOTE: If you purchase a product or service from both registered and un-registered supplier create different product or service.

Let's create an expense entry using this service and see how the reverse charge amount gets posted:

  1. Select the Plus icon (+) at the top > Expense
  2. Select an account to pay the expense from
  3. In item details section select "Manpower Supply" in the Product/Service dorpdown
  4. Enter the amount as 1000 Rs. and select 18% GST as tax
  5. You would notice that QuickBooks already calculates the reverse charge amount and shows you:
  • Reverse Charge(@0%) for Rs1,000.00                                          Rs0.00
  • CGST @ 9% on 0.00                                                                       0.00
  • SGST @ 9% on 0.00                                                                       0.00
  • Total                                                                                         1,000.00
  • Roundoff                                                                                          0.00
  • Tax you owe due to reverse Charge(@100%) for Rs1,000.00         Rs180.00
    1. Click on Save button
    2. Now click on the "More" button and click on "Transaction Journal" link
    3. You will note the following journal entry is passed:
      1. Bank A/c........................................Cr.                        Rs1,000.00
      2. Expense A/c...................................Dr.    Rs1,000.00   
      3. Input CGST  A/c..............................Dr.         Rs0.00   
      4. Input SGST A/c...............................Dr.         Rs0.00   
      5. Input CGST Tax RCM A/c.................Dr.        Rs90.00
      6. Output CGST Tax RCM A/c..............Cr.                               Rs90.00   
      7. Input SGST Tax RCM A/c.................Dr.        Rs90.00
      8. Output CGST Tax RCM A/c..............Cr.                               Rs90.00
        Total                                                         Rs1180.00     Rs1180.00  
    • Bank account is credited because the amount is being paid from that account.
    • Expense account is debited to book the expense
    • Input CGST & Input SGST is debited with 0 amount as 100% of the tax is reverse charged.
    • Input CGST Tax RCM is debited and Output CGST Tax RCM is credited to book the liability in the Output CGST Tax RCM
    • Input SGST Tax RCM is debited and Output SGST Tax RCM is credited to book the liability in the Output SGST Tax RCM account.
    Before we pay our GST tax, we need to first pass an adjustment for getting the correct tax liability. We will adjust the Input  Tax, Output Tax, Input Tax RCM against Tax Payable. Once the adjustment entry is passed, the correct Tax liability is found.

    Once the GST tax is paid to the government and the payment is recorded in QuickBooks, the tax paid as reverse charge can be used to be applied as credit in the next tax filing period(month).