💳📆 Handling Advance Payments under GST: Know the Rules! 📋💼

 💼 In this article, we will discuss how to handle advance payments under GST. If you're a taxpayer receiving advance payments for the Goods or Services you provide, it's crucial to know what to do. We'll help you understand how this affects your GST liability when you receive advances for the services you offer as a service provider. 📚🧾💰

Steps Involved:

1. 1. 📑 Advance receipt concept
2. 2. 💰 When does the liability of payment of GST arise?
3. 3. 🧾 Issue a receipt voucher
4. 4. 💵 Rate of Tax
5. 5. 📦 Nature of Supply
6. 6. 🧮 Calculate Tax on Advance received
7. 7. 📚 Case studies
8. 8. ❌ What if the supply gets canceled.
9. 
   

Advance receipt concept

The concept of "Advance receipt" refers to payments made before a supplier fulfills their obligations under an agreement. These payments are different from deposits and are not intended for refunds. 💼💰

Under the CGST Act of 2017, sections 7, 12, and 13 specify that any advances received for the supply of goods or services, even if the original supply is pending, are subject to taxation at the time of receiving those advances. The time of supply is determined as the earlier of either "the date of the issue of the tax invoice" or "the date of receipt of payment" as per Section 12 or Section 13. ⏳💼🧾

✅ For service providers, it is essential to pay tax on the advances they receive.

✅ Advances received for goods are not subject to tax liability.

✅ Composition dealers are required to pay tax on the advances they receive.

When does the liability of payment of GST arise?

📅⏳ In determining the Time of Supply for services, it is crucial to consider the following rules, and the earliest among them should be used:

1. 1.Date of Issue of Invoice: The time when the invoice for the service is issued to the recipient.

2. 2. Date of Receipt of Payment/Advance: The time when the payment or advance for the service is received.

3. 3. Date on Which Invoice Should be Issued: If the invoice is not issued within a specified time, the date when it should have been issued as per the relevant regulations.

Issue a receipt voucher

🧾📝 When an individual makes an advance payment, the supplier is obligated to provide a receipt voucher. This voucher must contain crucial information such as the advance amount, the applicable tax rate, and a detailed description of the goods or services being provided, along with other necessary details. 🧾💰💼

Rate of Tax

📜⚖️ As per Rule 50 of CGST Rules 2017, in situations where the tax rate cannot be determined for a particular transaction, the applicable tax shall be paid at a fixed rate of eighteen per cent. 📜💼💰

Nature of Supply

📜⚖️ According to Rule 50 of CGST Rules 2017, if the nature of supply cannot be determined, it will be treated as an interstate supply. 🚚🌐💼

Calculate Tax on Advance received

Mr. A has a service contract worth Rs 1,00,000 scheduled to be provided by 20th February. The total invoice value, including GST @ 18%, is Rs 1,18,000. On 10th January, he received an advance of Rs 60,000, and the remaining payment of Rs 78,000 was received on 20th February, the same day the invoice was raised. 🧾💼💰

Date	Total	Basic Value	Gst@18%	Taxable for the month
10th Jan	60,000	50,847	9,153	Jan (Advance)
20th Feb	58,000	49,153	8,847	Feb (Bal Pay)
Total	1,18,000	1,00,000	18,000

It is crucial to understand that when a taxpayer pays an advance, they are not eligible to claim Input Tax Credit (ITC) on that advance amount. ITC can only be claimed when the recipient receives the services or goods against which the advance was paid.

In the given example, the recipient will be eligible to claim ITC on the advance amount in February when they receive the services. Until then, they cannot claim ITC for the advance payment made in January. Claiming ITC on the advance amount can only be done after the actual supply of services has taken place. 🧾💼💳

📝💡 Note:

Let's say the above contract 📝📄 was for supplying goods 📦🚚 instead of providing services 💼🛠️. In this case, the recipient is not liable to pay tax on the receipt of the advance on 10th January. However, they will have to pay the entire tax amount of Rs 18,000 on the date of issuing the invoice, i.e., 20th February. 🗓️💰💼

Case Studies

Case1. 📝💼

An advance is received by a supplier for a Service contract which subsequently got cancelled. The supplier has issued the invoice before the supply of service and paid the GST thereon. Whether the supplier can claim a refund of tax paid, or he is required to adjust his tax liability in his returns?

Clarification: 📋💡

• 1. If an advance is received by a supplier for a Service contract, but the contract gets cancelled later:
• 2. The supplier has already issued the invoice and paid the GST on that advance amount.
• 3. In such cases, the supplier should issue a "credit note" as per section 34 of the CGST Act. 📝💼💼
• 4. The details of this credit note must be declared in the return for the specific month when it was issued.
• 5. The supplier can adjust the tax liability in their return, following the conditions stated in section 34 of the CGST Act. 💻💰
• 6. There is no need to file a separate refund claim for this situation.
• 7. However, if there is no output liability against which a credit note can be adjusted:
• 8. The registered persons may file a claim under "Excess payment of tax, if any" using FORM GST RFD-01. 📜💼💳

Case2. 📝💼

An advance is received by a supplier for a Service contract, which got cancelled subsequently. The supplier has issued a receipt voucher and paid the GST on such advance received. Whether the supplier can claim a refund of tax paid on advance, or he is required to adjust his tax liability in his returns?

🔍📋 Clarification:

• 1. If GST is paid by the supplier on advances received for an event that got cancelled subsequently, and no invoice has been issued as per section 31(2) of the CGST Act:
• 2. The supplier must issue a "refund voucher" following section 31(3)(e) of the CGST Act read with rule 51 of the CGST Rules, 2017. 🧾💼
• 3. The taxpayer can apply for a refund of GST paid on such advances by filing FORM GST RFD-01 under the category "Refund of excess payment of tax". 📜💼

What if supply get cancel?

In cases where supplies get cancelled for any reason, and the advance amount needs to be refunded, a refund voucher is required to be issued as per Rule 51 of CGST Rules, 2017. The taxpayer can then apply for a refund of the GST paid on such advances by filing FORM GST RFD-01 under the category "Refund of excess payment of tax." 🧾💼💳