At the time of introduction of GST each and every monetary transaction of business was analysed by experts and tax position under GST was published in public domain. In this article I would discuss about one particular headline which popped up in public domain ‘GST would not be applicable on DEPOSIT’.
There is no thumb rule under GST that any sum of amount received by business from its customer in the form of deposit will not be taxable. One needs to apply following test on amount / deposit received from customer to determine whether such deposit / amount will be taxable or not:-
1. Whether amount received is refundable or not?
2. Whether such amount can be adjusted as consideration of supply?
If answer to any one question given above is NO i.e, deposit is non-refundable or any outstanding sum of amount against supply made to customer can be adjusted from this deposit, than such deposit will be taxable under GST.
Above discussion is based on the Proviso to Section 2 (31) of CGST ACT “Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply”
Conclusion :– If you are receiving any sum of amount from your customer as deposit and you are not going to apply this deposit as consideration for supply than you should draft the agreement with your customer in such a way that these two conditions are stated very clearly to avoid further litigation and this would also help you to explain the same to GST Officials that why GST is not charged or not applicable on deposit received.