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Understanding the Reverse Charge Mechanism (RCM): Shifting Tax Liability to the Buyer

Introduction

Reverse Charge Mechanism (RCM) is a concept in tax law where the responsibility to pay tax on a transaction shifts from the seller (supplier of goods or services) to the buyer (recipient of the goods or services). This is typically used in value-added tax (VAT) or goods and services tax (GST) systems.

Direct RCM is not available in Odoo, DiracERP solution has developed the auto RCM module. This module will help you to manage the reverse tax entry in journals automatically.

Reverse Charge Mechanism (RCM) Explained: How Tax Responsibility Shifts to the Buyer

Key Points about RCM in Tax:

1. Applicability:

RCM is usually applied in specific situations, such as transactions involving goods or services from unregistered suppliers, certain types of imports, or specified services.

2. Tax Liability:

Under RCM, the buyer is responsible for paying the tax directly to the government, rather than the seller. This is different from the usual practice where the supplier collects the tax from the buyer and remits it to the government.

3. Compliance:

The buyer has to ensure proper compliance with RCM rules, including maintaining accurate records and filing necessary returns.

4. Common Use Cases:

In some countries, RCM is applied in sectors like construction, import of services, and transactions with unregistered entities.

RCM is commonly seen in VAT/GST systems in various countries, including India and the European Union.

User Guide

Step 1 :- Intall RCM Module

install RCM Step1 Top ERP Service Provider for Streamlined Business Solutions | DiracERP

Step 2 :- Group Name :- RCM In GST Tax

Group name RCM & GST TAX

Step 3 :- Open Accounting – Purchase – Direct Bill

Open Accounting – Purchase – Direct Bill

Step 4 :- Apply Rcm Tax ---tick

Apply Rcm Tax ---tick

Step 5 :- After Tick – Show RCM Tax and Select the Tax Type

After Tick – Show RCM Tax and Select the Tax Type Top ERP Service Provider for Streamlined Business Solutions | DiracERP

Step 6 :- After Apply Rcm Tax – Entry The bill line

After Apply Rcm Tax – Entry The bill line

Step 7 :- Apply TDS

Apply TDS Top ERP Service Provider for Streamlined Business Solutions | DiracERP

Step 8 :- After Apply TDS and Bill Entry , Apply Validate Button

After Apply TDS and Bill Entry , Apply Validate Button

Step 9 :- Finally RCM apply and showing Entries

Finally RCM apply and showing Entries Top ERP Service Provider for Streamlined Business Solutions | DiracERP

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