Let’s say, you wish to track the tax credit that you receive from the government for reverse charge transactions. You will have to manually record this in the Tax Payable Expense account and the respective payable account(s) depending on the type of transaction.
Lets look at a scenario to understand this better,
You are a registered business owner and you are buying goods from an unregistered vendor from another state. This inter state transaction is applicable for reverse charge.
The tax you are liable to pay on behalf of your vendor, is reflected in the following accounts,
The following month you’ll receive tax credit for the reverse charge tax amount paid during the previous month. You can avail this tax credit while paying IGST for that month.
To record this tax credit that you received from the government, you will need to make journal entries. That is, you will have to enter the tax credit that you received as,
Simplify accounting and