When a payment is made before its actual time such payment is termed as advance payment. Such as making the payment for the goods or service before the receipt of goods or service. Advance payments are sometimes required by sellers as protection against non-payment, or to cover the seller’s manufacturing costs for supplying the service or product. In this article, we will discuss the applicability of GST on advance payments.
For example, the rents of a marriage halls are Rs 50,000 for one day. To confirm the booking of this hall, we pay an amount of Rs 15,000 to the owner. This payment is called an advance payment.
GST on Advance Payment
GST is to be paid at the time of delivery of the goods or completion of services. Therefore, If a supplier demands an advance payment before rendering the services, GST has to be paid on the advance amount even if service has not yet been rendered. However, an exception to this rule is the receipt of advances for supply of goods.
In other words, option is available only in case of supply of goods, to pay tax at the time of supply. But this option is not available for supply of services or composition scheme. Therefore, advance received to be taxed on the date of receipt in case of services or composition scheme. But, the taxpayer can claim ITC on advance paid only on receipt of goods or services. The supplier has to issue receipt voucher to the person paying advance and mention the same in GSTR 1.
GST Advance Receipt Voucher
The advance receipt voucher is required to contain the following details in order to comply with the GST rules:
- Name, address and GST Identification number of the supplier of the goods or/and service;
- The advance receipt voucher must contain a consecutive serial number not exceeding sixteen characters, containing alphabets or numerals or special characters;
- Date of issue;
- Name, address and GST Identification Number, if registered, of the recipient;
- Details of the of goods or services;
- Amount of advance received;
- The rate of tax;
- Amount of tax charged in regard to taxable goods or services;
- Place of supply along with the name of State and its code
- Whether the GST is payable under the reverse charge basis; and
- Signature or digital signature of the supplier or his authorised representative.
Treatment of Advance Received In GST Return
Details of the amount received as the advance are required to be mentioned in sr. no. 11A of the GSTR – 1 return. As it shows the figure of the advance money received in the tax period for which invoice has not been issued.
Additionally, it is important to note that in sr. no. 11A of the GSTR – 1 return figures of the advance money received must be divided in two parts i.e. advance money received against intra-state supplies and advance money received against inter-state supplies. However, consolidated figures of the advance money received are to be stated in the same, details of each advance money received need not to be mentioned.
The gross amount of advance money received is required to be mentioned under the head ‘Gross Advance Received / Adjusted’ and matching tax liability is required to be reflected under ‘Central’ and ‘State/ UT’ head in case of intra-state supplies and under ‘integrated’ head in case of inter-state supplies.
Table 11B captures the adjustment of taxes paid in advance, i.e. when the invoice against which an advance was received earlier is raised. It may also happen that an advance is received in one financial year and its adjustment is made in the subsequent financial year.
Note: If the rate of tax and place of supply is not determinable at the time of receipt of an advance, then it should be treated as an inter-state supply and tax should be deposited at a rate of 18%.
GST Refund Voucher
If the delivery of goods or service does not take place due to certain reasons after receipt of advances, a refund is supposed to be initiated. The advance refund voucher must include the following details to comply with the GST rules:
- Name, address and Goods and Services Tax Identification Number of the supplier;
- A consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters’ hyphen or dash and slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial year;
- Date of its issue;
- Name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient;
- Number and date of advance receipt voucher issued by the provisions of rule 50;
- Description of goods or services in respect of which refund is made; the amount of refund made;
- The rate of tax (central tax, State tax, integrated tax, Union territory tax or cess);
- Amount of tax paid in respect of such goods or services (central tax, State tax, integrated tax, Union territory tax or cess);
- Whether the tax is payable on reverse charge basis; and
- Signature or digital signature of the supplier or his authorised representative.
FAQs on Advances received
- Advance received in previous month, GST paid on advance, invoice raise in current month. In GSTR-1 table B2B has shown full invoice amt in current month and adjustment of advance shown in 11 b, but tax liability ledger showing full liability. It should show adjustments of tax paid against advances.
Ans. It would have been correct if the GSTR – 2 and GSTR – 3 are in place, but now we do not have them, till such time you should adjust the same in GSTR – 3B and do the process you are doing currently.
Calculate GST Interest
- Will GST be payable at the time of raising an invoice for supply of goods from a mining lease holder or it will be applicable on the amount of advance received by the mining company for booking the order?
Ans. As per the provisions of section 12(2) of the CGST Act, 2017 the time of supply of goods shall be the date of issue of invoice or the date of receipt of payment, whichever is earlier. Accordingly, GST would be payable on advance payment received prior to issuance of the invoice.
- Will the supplier have to issue “receipt voucher” against each advance received?
Ans. Yes, as per section 31(3)(d) of the CGST Act, 2017 the supplier has to issue a “receipt voucher” for every advance received.
FAQs on eligibility of input tax credit on Food and beverages
- In case no supplies are made against an advance, will the dealer have to issue a “refund voucher” only for the advance or for advance including GST?
Ans. Refund voucher has to be made for the full value of advance, including the amount of GST.
Important Difference between Composition and Regular scheme
- Is GST payable at the time of advance paid to an advocate under RCM?
Ans. As per section 13(3) of the CGST Act, 2017 In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates, namely:–
[a] the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
[b] the date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier:
Therefore, GST need to be paid on advance payment to advocate under RCM since it is earlier than 60 days from the date of issue of invoice.
Easy way to understand Reverse Charge Mechanism and its Updated List
- In a software company the contract is finalized but amount is received in 3 or 4 parts. As the clients pay advance basis completion of project and pay GST only during final payment. When should the GST be paid considering that GST is paid by client only during final payment.
Ans. You Have to pay GST on advanced received against service. You can treat amount received as inclusive of tax and pay.
FAQs on GST Annual Return Form -GSTR 9 released by ICAI
- What if there is no GST on advance received against sale of goods , how can i issue a receipt voucher mentioning tax liability in it?
Ans. In terms of Section 31(3)(d) read with Rule 50 a taxpayer has to issue receipt voucher even if the same is not taxable. The tax amount is to be filled as if the supply is taxable
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