GST on Advance Payment against Supply of Goods or Services

An advance payment is that part of a contractually due that is paid in advance for goods or services. Under the current article we would look into the provisions affecting the advance payment under Goods and Service Tax (GST) like the time of supply, receipt voucher, refund voucher, applicable exemption and reflection of advance payment entries in the Goods and Service Tax Return.

PROVISIONS RELATING TO THE TIME OF SUPPLY IN CASE OF ADVANCE PAYMENT –

The time of supply is the base to determine the time of payment of tax and as per provisions of section 12 (2) of the Central Goods and Service Tax Act, 2017 the time of supply shall be earliest of the following –

• Date of issuance of the invoice or the last date on which invoice should have been issued; and
• Date of receipt of the payment;

Thus from the above it is clear that the tax needs to be paid if the supplier receives the payment first.

ACTION ON THE PART OF THE RECEIVER WHEN ADVANCE PAYMENT HAS BEEN RECEIVED –

Provisions of section 31 (3) (d) of the Central Goods and Service Tax Act, 2017 requires that on receipt of advance payment, the registered person needs to issue a ‘receipt voucher’ or any other documents.

The particulars to be provided in the ‘receipt voucher’ or any other document is contained under rule 50 of the Central Goods and Service Tax Rules, 2017 which are listed here in below –

• Name, address and GSTIN of the supplier;
• A consecutive serial number;
• Date of issue;
• Name, address and GSTIN of the receiver;
• Description of goods / service;
• Advance amount;
• Rate and amount of tax;
• Place of supply, State name and State code (in case of inter-state supply);
• Whether tax payable on reverse charge basis;
• Signature of the supplier.

It must be noted that in case the rate of tax is not determinable it shall be paid @ 18% and in case the nature of supply is not determinable it shall be treated as inter-state supply.

ACTION ON THE PART OF THE RECEIVER WHEN ADVANCE PAYMENT HAS BEEN RECEIVED, HOWEVER, THERE IS NO SUBSEQUENT SUPPLY –

Provisions of section 31 (3) (e) of the Central Goods and Service Tax Act, 2017 requires that in case the advance payment has been received, however, there is no further supply and no tax invoice being issued, then, in such case the registered person needs to issue a ‘refund voucher’ against advance payment so received.

The particulars to be provided in ‘refund voucher’ is contained under rule 51 of the Central Goods and Service Tax Rules, 2017 which are listed here in below –

• Name, address and GSTIN of the supplier;
• A consecutive serial number;
• Date of issue;
• Name, address and GSTIN of the receiver;
• Number and date of receipt voucher;
• Description of goods / service;
• Amount of refund;
• Rate and amount of tax;
• Signature of the supplier.

It must be noted that the above action is to be done when the tax invoice has not been issued, however, in case the tax invoice has been issued and subsequently there is no supply, in that case the supplier need to raise the credit note.

EXEMPTION FROM PAYMENT OF GST ON ADVANCE PAYMENT RECEIVED –

Vide notification no. 66/2017 – Central Tax dated 15^th November, 2017, specific exemption from the payment of GST on advance receipt has been granted to the supplier of goods.

In order words, when ‘supplier of goods’ receives advance payment, he is not required to pay GST at the time of the receipt of advance payment, however, under this situation, the time of supply would arise only at the time of issuance of the invoice and the tax liability needs to be discharged only at that time.

It must essentially be noted here that the above exemption is available only to the supplier of goods, meaning thereby that the supplier of service needs to pay the tax at the time of advance receipt. Further, the exemption is also not available to the composition scheme dealer.

ADVANCE PAYMENT ENTRIES IN GOODS AND SERVICE TAX RETURN (GSTR) –

Sr. no. 11 of GSTR -1 contains details of advance payment and the same is briefed hereunder –

• Details of advances which has been received, in the current tax period, by a registered person for which invoice has not been issued needs to be provided under sr. no. 11A. Details of both intra-state supplies and inter-state supplies needs to be bifurcated.
• Details of advances which had been received in the earlier tax period and which has been adjusted against the supplies being shown in the current tax period needs to be provided under sr. no. 11B. Details of both intra-state supplies and inter-state supplies needs to be bifurcated.