The advance you paid before procurement of any supply was initially taxable under GST, but later to simplify the process, the council modified the same and gave relaxation to the suppliers of goods. In this article, earlyGST by H&R Block India provides the detailed information regarding the same.

Advance Received under GST

Last Update Date : May 08, 2018

advance under gst

Honesty is the best policy. But in this world of fraudulent people, the honest ones suffer the most. For any trade activity to happen, there must be an assurance form both the sides. Advance payment is that assurance given by the recipient to the supplier that he will buy the goods or services produced by the supplier. And in return the supplier provides him advance receipt which states that the advance taken by him will be utilised for his benefit. What happens when this advance is liable to be taxed? Does this create any impact on the trading activity?

GST on Advance Payment

An advance payment is a type of payment that is made ahead of its normal schedules, such as paying for the goods or service before you actually receive the goods or service. Advance payments are sometimes required by sellers as protection against non-payment, or to cover the seller’s manufacturing costs for supplying the service or product.

For example, the rentals of a wedding hall are Rs 1,00,000 for one day. To confirm the booking of this hall, we pay an amount of Rs 15,000 to the owner. This payment is called an advance payment.

Generally, the taxes are to be paid at the time of final delivery of the goods or completion of services. But an exception to the same is the receipt of advances.

Receipt of Advance Payment

As per the GST law, the time of supply to the extent of advance received gets immediately attracted on the receipt of the said amount.

If a supplier asks for an advance payment before the final delivery of goods or services, GST has to be paid on the advance amount even if the delivery has not yet been conducted.

GST Receipt Voucher

The advance receipt voucher must include the following details to comply with the GST rules:

  • Name, address and Goods and Services Tax Identification Number of the supplier;
  • A consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters hyphen or dash and slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial year;
  • Date of its issue;
  • Name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient;
  • Description of goods or services;
  • Amount of advance taken;
  • The rate of tax (central tax, State tax, integrated tax, Union territory tax or cess);
  • Amount of tax charged in respect of taxable goods or services (Central tax, State tax, integrated tax, Union territory tax or cess);
  • Place of supply along with the name of State and its code, in case of supply in the course of inter-state trade or commerce;
  • Whether the tax is payable on reverse charge basis; and
  • Signature or digital signature of the supplier or his authorised representative.

Below is the format of an advance receipt voucher which is to be given to the buyer by the seller once the seller receives the advance payment.

GST Refund Voucher

If the delivery of goods or service does not take place due to certain reasons after receipt of advances, a refund is supposed to be initiated. The advance refund voucher must include the following details to comply with the GST rules:

  • Name, address and Goods and Services Tax Identification Number of the supplier;
  • A consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters’ hyphen or dash and slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial year;
  • Date of its issue;
  • Name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient;
  • Number and date of advance receipt voucher issued by the provisions of rule 50;
  • Description of goods or services in respect of which refund is made; the amount of refund made;
  • The rate of tax (central tax, State tax, integrated tax, Union territory tax or cess);
  • Amount of tax paid in respect of such goods or services (central tax, State tax, integrated tax, Union territory tax or cess);
  • Whether the tax is payable on reverse charge basis; and
  • Signature or digital signature of the supplier or his authorised representative.

Calculation of Advance Payment under GST:

Let us understand the Advance Payment under GST using an example.

Mr Advay is a manufacturer and supplier of plastic containers. He receives an order of 1000 plastic containers from Ms Gargi worth Rs. 30,00,000. To start the production, he requested an advance payment of Rs. 12,00,000 inclusive of GST. Ms Gargi made an advance payment of Rs. 12,00,000 for which she received a receipt voucher.

Assume base price: x, CGST 9% (0.09 x), SGST 9% (0.09 x)
Total = x + 0.09 x + 0.09 x = 1.18 x = Rs 12,00,000
x = Rs 10,16,949
CGST: = 0.09 x 10,16,949 = Rs 91, 525.50
SGST: = 0.09 x 10,16,949 = Rs 91, 525.50

Ms Gargi will not receive the ITC for the advance paid until Mr Advay raises the final invoice. Once she receives the invoice after settling the balance amount, she will be in a position to claim the credit of the whole amount of taxes.

Following scenarios may arise during compliance with GST Advance Payment:

  • Refund of advance payment on cancellation of the order
  • Dispute with customer
  • Handling and maintaining records and documentation of the various customers who have paid the advances
  • Short supply of materials
  • Cash discount on Advance payment

Table 11 of Form GSTR-1

The table 11A includes the data of advances received, tax paid according to the GST rate applied to the particular delivery at the particular place of supply (POS) in the given time period.

Note: If the rate of tax and place of supply is not determinable at the time of receipt of an advance, then it should be treated as an inter-state supply and tax should be deposited at a rate of 18%.

The table 11A includes only the taxes paid on advances received during the respective tax period.

Table 11B captures the adjustment of taxes paid in advance, i.e. when the invoice against which an advance was received earlier is raised. It may also happen that an advance is received in one financial year and its adjustment is made in the subsequent financial year.

Exemption of GST on Advance Payment Received

As per central GST notification no 66/2017 dated 15th November 2017, suppliers of goods who have not opted for Composition Scheme are exempted from payment of GST on receipt of advance payments. However, the supplier of services should pay GST at the time of receipt of the advance payment.

Implications

Initially, GST had to be paid on the advance payment and then again on the balance amount.

Example: If I want to buy a frame of Rs. 1000, I pay an advance of Rs. 500 to the supplier. Out of this 500, say Rs. 480 is the basic price, Rs. 10 is CGST and Rs. 10 is SGST. Of the remaining Rs. 500, the same distribution is to be paid after the final procurement.

This requirement was not only resulting in additional compliance and record keeping but was also a cash flow issue since credit of such GST is available to the recipient only on receipt of final invoice. After realising the issues faced by the industry, the government had initially provided the relaxation for non-payment of GST on advances to small suppliers of goods having turnover less than 1.5 crores in October which was further extended to all the suppliers of goods as per the notification issued in November. However, the requirement to issue an advance receipt voucher at the time of receipt of advance remains. This change improved the condition of the blocked working capital of all businesses, cleared the air over the tax liability on the supplies yet to be made and repaired the disruption caused in the supply chain.

To reduce the burden of tax on the advance payment for any supply, the GST council modified the regulations to make the process smooth which is beneficial to suppliers and the recipients. earlyGST by H&R Block India will assist you to file your GST returns and make sure that the ITC is claimed without any complications.

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