Accounting and GST for a bounced cheque
Every entry from the bounce to recovery or write-off, for both the payee and the drawer, with the GST and TDS effect.
General legal information, not legal advice. Timelines are indicative and depend on your facts. Consult an advocate or CA before acting on a notice, dispute or recovery.
Short answer
When a customer's cheque bounces, reverse the receipt: Customer Dr, Bank Cr. The sale and its GST stay as they are. Record bank charges as an expense, and record legal costs as you incur them.
Payee side (you received the cheque)
Setup: Invoice ₹1,18,000 (₹1,00,000 + 18% GST) to Verma Stores. The receipt was already entered when the cheque was deposited.
| # | Event | Entry | Amount (₹) |
|---|---|---|---|
| 1 | Cheque bounces | Verma Stores Dr → Bank Cr | 1,18,000 |
| 2 | Bank's return charges (₹500 + 18% GST) | Bank charges Dr 500, Input CGST Dr 45, Input SGST Dr 45 → Bank Cr 590 | 590 |
| 3 | You recover the charges or a penalty from the customer | Verma Stores Dr → Cheque bounce charges recovered (Other income) Cr | 590 |
| 4 | Advocate's fee (₹15,000) | Legal expenses Dr → Advocate Cr | 15,000 |
| RCM on advocate fee, if you are a business entity liable to RCM | Input IGST (RCM) Dr 2,700 → IGST payable (RCM) Cr 2,700 (use CGST/SGST if intra-state) | 2,700 | |
| 5 | Customer pays after notice | Bank Dr → Verma Stores Cr | 1,18,590 |
| 6 | Dues unrecoverable, written off | Bad debts Dr → Verma Stores Cr | balance |
GST notes
- The bounce does not change the GST already paid on the sale. You cannot issue a credit note just because the customer didn't pay.
- A cheque dishonour penalty or fine you collect is not taxable under GST (CBIC Circular 178/10/2022-GST). Do not charge GST on it.
- Bank charges carry 18% GST. Claim ITC if the bank shows your GSTIN.
- An advocate's services to a business are usually under reverse charge. Small business entities below the exemption turnover limit are exempt. Check your case.
TDS note: Deduct TDS on the advocate's fees once the year's total crosses ₹50,000 (Income-tax Act 2025, section 393; old 194J).
Drawer side (your cheque bounced)
Setup: You paid supplier Kapoor Steels ₹2,36,000 by cheque, and it was recorded as a payment.
| # | Event | Entry |
|---|---|---|
| 1 | Cheque bounces | Bank Dr → Kapoor Steels Cr (the payable is back) |
| 2 | Your bank's return charges | Bank charges Dr, Input GST Dr → Bank Cr |
| 3 | Penalty paid to supplier | Penalty / cheque bounce charges Dr → Kapoor Steels Cr. Not deductible for tax if it is a penalty for breaking the law; contractual charges generally are deductible |
| 4 | Fresh payment | Kapoor Steels Dr → Bank Cr |
GST warning for the drawer: If you don't pay the supplier within 180 days of the invoice date, you must reverse the ITC taken on that invoice in GSTR-3B, with interest. You can reclaim it when you pay (CGST Act s.16(2), second proviso).
What affects what
Cheque bounce (payee side)
Bank balance ↓ falls by cheque amount
Receivable ↑ customer dues come back
Sales / GST — no change
P&L ↓ bank charges and legal fees; ↑ charges recovered
Receivables ageing ↑ dues now older; watch the 90-day AI Audit flagIn Hisab Central
- Payment (F5) from the bank account. Debit the customer and credit the bank with the cheque amount, since money has left the bank balance you had recorded. In the narration write
Cheque no. ___ dated ___ returned on ___, reason ___. - Enter bank charges as a Payment (F5) from the bank to Bank Charges, with GST.
- Mark the original receipt as reconciled and bounced in Bank Reconciliation (Alt+B), so the bank book matches the statement.
- Check the Receivables ageing report after the entry.
Common mistakes
- Deleting the original receipt voucher instead of reversing it. This breaks the audit trail, which is mandatory to keep.
- Issuing a credit note for a bounced cheque.
- Charging GST on the cheque bounce penalty.
- Forgetting RCM on the advocate's fee.
Sources
- CBIC — Circular 178/10/2022-GST (cheque dishonour fine not a consideration)
- CBIC — Notification 13/2017-Central Tax (Rate), entry for services of an advocate
- CGST Act, 2017 — section 16(2), second proviso (180-day payment rule)
Last verified: 30 Sep 2026.