Impact of GST on Advance Payment Received for Future Supplies


July 1, 2019

GST on Advance Payment Received

While paying tax for a transaction under GST, it is very necessary to determine the norms for the time of supply. The GST on advance is charged based on the time of supply made. Check out the below terms.

Given below are the general norms for the time of supply for services

  1. Date of issue of invoice
  2. Date of receipt of payment/advance*
  3. Date on which invoice should be issued

The second point – date of receipt of advance – indicates that if the buyer pays has paid an advanced before the invoice is issued, the date of receipt of advanced would be the time of supply.

The GST must be paid on the money received by the taxpayer who has received the advance.

*Note: there is no GST for the supply of goods payment which is received in advance but on the issue of invoice, the total amount will be taxed.

Read more: Treatment of Advance Payment Received for the future supplies

What must a taxpayer do when he receives an advance payment?

Below are the given points on which a taxpayer must take an action on receipt of advance:

1. To issue a Receipt Voucher:
The receipt voucher must be issued by the supplier to the person who is paying advance. Details like the rate of tax applicable, description of goods or services, amount of advance, etc will be present in the receipt voucher.

2. To compute tax on Advance Received
While filing the return for the month, you have to compute and pay the tax on the advance.

The advance which has been received must be collected which means that the advance which is received must be considered inclusive of GST.

If the rate of tax is not determined during receipt of advance then the GST @ 18% will be imposed.

Also if the point of sale cannot be ascertained the advance is considered as interstate supply and IGST has to be paid.

Note that, the taxpayer who pays advance are not qualified for claiming ITC on the advance payment. ITC can be claimed by the taxpayer on advance paid on goods or services receipt.

3. Furnishing details of Advance Receive in GSTR-1
If a taxpayer receives an advance for which invoice is not issued then it should be stated in Pt.11A of GSTR-1 return.

It is not compulsory to give all the details of each advance, A accumulative figure of the entire advances must be given.

The advance must be separated into Intrastate and Interstate advances.

The gross figures of advances must be stated under Gross Advance Adjusted/Received.

Then, the tax payable i.e. IGST in case of interstate and CGST and SGST in case of intrastate advances must be mentioned.

This tax on advance is added to the tax liability of the supplier.


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