Is GST to be paid on Advance Payment?

Raksha Tiwari

16 Mar, 2023

There has been a lot of discussion regarding GST and tax payment procedure under GST. We have also discussed ‘point of taxation’ under GST, i.e. the point of time when tax payment becomes due. However, there are some changes introduced by the council in relation to the same, exempting Advance payment under GST Registration for the supply of goods.

When does Liability of GST Payment Arise?

Originally as per the rules Point of taxation i.e., the point when the liability to pay tax arises is equivalent to the time of supply. Under GST, to understand the concept of supply is very important. You can refer to our previous article on time, place and value of supply for the same.

Time of supply will be the latest of the following –

1. The date mentioned on the invoice
2. Date of an advance payment under GST
3. Due Date by when invoice should be issued

This provision is similar to previous laws. As even under Service Tax, there were provisions relating to point of taxation. Earlier also, any payment received was taxable in nature.

Amendment passed on 13^th November 2017

Vide Notification No. 66/2017 dated 15.11.2017 the government issued certain amendments relating to the treatment of advance payment under GST. As per this amendment passed by the GST Council, the liability of GST payment in reference to the advance tax received for supply of goods has been removed. What this actually means that no tax liability will arise in case any advance is received by any supplier of goods.

Who is not covered under the said exemption?

This facility to not pay GST on Advance Received is available to the supplier of goods. Following people are not included in the relief granted I the exemption notification:

1. Taxpayer registered under Composition Scheme
2. Supplier of Services.

Treatment of Advance Received

First Step: Issue Receipt Voucher

As per Section 31 (3) (d) of the CGST Act, 2017^[1], if any taxpayer receives any advance payment then in place of GST registration Invoice they are required to issue Receipt Voucher or any other similar document containing following details:

1. GSTIN, name and full address of the supplier
2. A unique consecutive no.
3. Date of issue
4. Description of goods or services in lieu of which advance is received
5. Rate of tax
6. Amount of tax, if liable to be paid
7. Sign of supplier or their legal representative.

NOTE: Irrespective of the exemption provided from tax liability, the taxpayer is required to issue an advance receipt voucher at the time of receipt of advance payment.

Second Step: Tax calculation and mention in GSTR-1

After the issue of advance Receipt Voucher, the second important step is to make sure to compute tax liability when a tax payment is required (in case of composition dealer and supplier of services).

Along with computation of tax, information relating to advance received is to be mentioned in GSTR-1 filing.

Benefits

This decision relating to exemption of Advance received by a supplier of goods from tax ambit is a welcome step. Following are the benefits resulting from the same:

1. Relief from additional compliance requirement.
2. Relief from recordkeeping requirements.
3. Will help in maintaining good cash flow. As earlier tax payment was required by no input tax credit was available for the same until the receipt of goods.

It would be even better if this relaxation is granted to the supplier of services also. As they are open to similar challenges.

For any further information in relation to GST Registration or any other related inquiry, contact Enterslice.

Read our article:26th GST Council Meeting Updates