Answer By law4u team
Under GST (Goods and Services Tax) in India, advance payments received for goods or services are subject to GST. The tax treatment of such payments is outlined in the GST Act, specifically in relation to the time of supply and the point at which tax liability arises. Key Points Regarding GST on Advance Payments: Time of Supply for Advance Payments: According to Section 12 of the CGST Act, when an advance payment is received for goods or services, the time of supply is the date of receipt of the advance, not the date of supply of the goods or services. This means that GST becomes applicable when the advance payment is made, even before the goods are delivered or the services are rendered. GST on Advance Payment: When an advance is received for goods or services, the supplier is required to charge GST on the advance amount received. The applicable GST rate for the goods or services being provided should be applied to the advance payment. The supplier must issue a receipt voucher (or an invoice) at the time of receiving the advance payment. Issuance of Invoice on Receipt of Advance: If an advance payment is received, the supplier must issue an invoice or receipt voucher as per the provisions of the GST law. The supplier will charge GST on the advance and remit the tax to the government. Adjustment of GST on Final Payment: When the final payment is made and the goods are delivered or services are rendered, the supplier must issue a tax invoice for the total value of the transaction. The GST paid on the advance will be adjusted against the GST liability on the final invoice. If the advance payment was more than the final amount, the excess GST paid can be adjusted against future tax liabilities or refunded. GST on Advance for Goods: For goods, GST is applicable on the advance received, and the supplier must pay the tax when the advance is received, regardless of when the goods are supplied. Once the goods are supplied, the supplier can adjust the advance amount and the applicable GST. GST on Advance for Services: Similarly, for services, GST is applicable on the advance received. The supplier must issue an invoice or receipt voucher for the advance payment, and the GST on that advance must be paid. When the service is completed, the tax already paid on the advance is adjusted in the final invoice. GST Refund on Advances: If the advance payment is refunded due to non-supply of goods or services (such as a cancellation), the supplier is required to reverse the GST that was paid on the advance. The refund of the advance must be accompanied by a credit note for the amount of GST initially paid. Provisions for Specific Transactions: Certain transactions like the export of goods or services or inter-state transactions may have different provisions for handling advance payments under GST, and the supplier should comply with these specific rules. Summary: When advance payments are received for goods or services, GST is applicable on the advance amount at the time of receipt. The supplier must issue a receipt voucher, charge GST on the advance, and remit the tax. Upon the final supply, the GST paid on the advance is adjusted against the final invoice. If the advance is refunded, the GST must also be reversed.
