GST On Advance Payment

GST On Advance Payment –

The rules for the time of supply under GST play a lawfully important role in determining when to pay tax for a transaction. the final rule for the time of supply for services is the earliest of the subsequent.

Date of issue of invoice

Date of receipt of payment/advance

The date on which the invoice should be issued.


The second point above is receipt of advance. This implies that if the advance is received before the difficulty of the invoice the time of supply would be the date of receipt of the advance. Thus taxpayers accepting advance must pay GST on the money obtained.

Note: For the availability of products advance received isn’t subject to GST. the complete amount is taxed on the difficulty of the invoice (w.e.f. 15th November 2017).

What is a taxpayer presumed when an advance is received.

A taxpayer has got to take the subsequent actions on receipt of advance:

Issue a Receipt Voucher.

The supplier must issue a receipt voucher to the person paying beforehand. The receipt voucher will contain details like the amount of advance, the speed of tax applicable, description of products or services, etc.

Calculate Tax on Advance Received

You have to evaluate tax in advance and pay tax while filing the recovery for the month. The advance received should be grossed up. This implies that the advance received is taken into account inclusive of GST. When the speed of tax can’t be determined during receipt of advance GST @ 18% must be charged. Also if the purpose of sale can not be ascertained the advance is taken into account as interstate supply and IGST has got to be paid.

Let us understand the treatment of advance under GST using an e.g:

Mr. A entered into a contract of delivering services worth Rs 10,00,000 by 20th February. the overall invoice value together with GST @ 18% is Rs 11,80,000. He obtained an advance of Rs 4,00,000 on 10th January and a balance payment of Rs 7,80,000 on 20th February. The invoice was also raised on 20th February.

Here is how you may calculate tax:

It is vital to notice here that the taxpayer paying advance isn’t eligible to assert ITC on advance paid. The taxpayer can claim ITC on advance spent only on receipt of employment. this implies that within the above e.g recipient are going to be capable to assert ITC on an advance in February.

Note: Say, the above contract was entered to produce the products rather than providing services. Then, the recipient isn’t prone to pay the tax on the receipt of the advance on 10th January. However, he has got to pay the complete tax amount of Rs 1,80,000 on the date of issue of the invoice, i.e. 20th February.