12 September 2026 · Ruhu AI

The RCM Credit Trap in Zoho Books: Why Lakhs Sit in "Reverse Charge Tax Input but not due"

There is an account in every GST-enabled Zoho Books organisation in India that quietly accumulates money: Reverse Charge Tax Input but not due. In one recent audit we found a balance of over Rs 20 lakh parked there, built up over more than a year. That is potentially real cash: reverse-charge tax the business had, in most months, already paid to the government, sitting as an accounting entry instead of usable input credit.

How the account is supposed to work

When you book a reverse-charge purchase in Zoho Books, it correctly posts two legs:

Debit Reverse Charge Tax Input but not due (an asset: credit you will be entitled to once you pay the tax)
Credit the GST output liability accounts, typically named Output CGST and SGST, or Output IGST (exact names vary a little between organisations)

The words "not due" are the point. For reverse-charge supplies from unregistered suppliers, Rule 36(1)(b) allows the ITC against your self-invoice subject to payment of the tax; for registered-supplier RCM the pay-first condition flows from Section 16(2)(c). Either way the credit becomes claimable only after the tax is actually paid, which happens when you file that month's GSTR-3B and discharge Table 3.1(d) in cash.

The step Zoho leaves to you

After you pay, the credit is real, and the balance should move out of the interim account into your actual input tax credit. Zoho Books does not do this automatically. Its own help documentation describes it as a manual journal you pass each month: debit the ITC account, credit Reverse Charge Tax Input but not due.

Miss the journal one month and nothing visibly breaks. Miss it every month and three problems build up:

The balance sheet inflates. An asset that should recycle to zero every cycle instead grows without limit, and the matching Output tax accounts often pile up alongside it.
Your working capital hides. If your GST filings never claimed this credit either, you have been paying output tax in cash that the credit should have absorbed.
The clock runs. Section 16(4) puts a time limit on availing ITC, generally 30 November following the financial year. One saving grace, clarified in CBIC Circular 211/5/2024: for RCM from unregistered suppliers (imports included), where no self-invoice was ever issued, issuing it now counts the window from the current year, at the cost of interest and possible penalty. Credit on registered-supplier RCM invoices past the deadline is the genuinely lost bucket.

The five-minute check

Open your chart of accounts and look at the balance of Reverse Charge Tax Input but not due.

Roughly one month of RCM accruals: healthy. That is the current cycle awaiting settlement.
Several months or years of accumulation: the release journals are not happening. Reconcile the balance against what your GSTR-3Bs actually claimed, month by month.

Then check the mirror image: are your Output IGST, CGST and SGST accounts also growing without ever being knocked down by settlement entries? If both sides pile up, your books and your returns have drifted apart, and the books no longer prove what was paid and claimed.

The fix

List the interim account's entries by month and match each month against that month's GSTR-3B: was 3.1(d) paid, and was 4(A)(3) claimed?
Where tax was paid and credit was claimed in the return but never released in the books, pass the catch-up journal.
Where credit was never claimed in the returns, claim what is still within the Section 16(4) window in your next return, then journal it.
Add the monthly release journal to your GST filing checklist so the account returns to its normal rhythm: fill, settle, and empty.

Frequently asked questions

Is this problem specific to Zoho Books? The account name is Zoho's, but any system that books RCM through an interim credit account has the same manual step somewhere.

Can I just claim the whole old balance now? Not automatically. Check each month against the Section 16(4) window, and for unregistered-supplier RCM consider the Circular 211/5/2024 self-invoice route with professional advice.

We flag bills as reverse charge in Zoho. Is that enough? The flag books the liability and the interim credit. The monthly release journal after payment is still a separate, manual step.