In general, goods and services tax is imposed by the supplier at the time of issuing tax invoice for supply to recipients. Based on the type of supply, an advance payment can be made by the recipient on demand from the supplier. In such type of cases, question arises, whether the supplier has to charge GST on advance payment? In this article we will be answering this question. You will also know how refunds are made and receipt vouchers are issued in GST.
What is advance payment under GST law ?
When recipient of goods or services made payment ahead of its actual schedule, it’s referred as advance payment. This means the recipient is making payment for the goods or services before receiving it. Such payment can be for the full value of the goods or services or can be a partial payment.
In general, advance payments are received from supplier to safeguard against non-payment for supplying goods and services or to cover the initial cost of supplying.
For example, suppose the value of goods is Rs 2,00,000. To safeguard against non-payment, supplier may demand Rs 25,000 before supplying goods to the recipient. In this case, Rs 25,000 is referred to as advance payment.
Is GST to be paid on advance payment
If any advance payment with respect to supply of goods or services is received, the registered taxable person shall issue a receipt voucher or any other document evidencing receipt of such payment.
Vide notification number 66/2017 dated 15th November 2017, supplier of goods is not required to pay GST at the time of receipt of advance payment. In this case, time of supply arises only when the invoice is issued, hence tax liability need to be discharged at that time.
The above exemption is not applicable to supplier of services. Therefore, supplier of services need to pay tax for the advance payments received. This exemption is also not applicable to persons opted for composition scheme.
In case, at the time of receipt of advance for supplying services, the rate of tax is not determinable, tax shall be paid at the rate of 18%. In case the nature of supply is not determinable, the same shall be treated as inter-state supply.
In case of refund for not supplying goods or services as agreed against the advance payments, the supplier who issued receipt voucher is required to issue a refund voucher against such payment.
Particulars in a receipt and refund voucher
A receipt voucher issued for advance payment in GST shall contain the following particulars;
- Name, address and GSTIN of the supplier;
- Serial number not exceeding 16 characters, in one or multiple series, unique for a financial year;
- Date of its issue;
- Name, address of the recipient;
- GSTIN of the recipient, if registered;
- Description of goods or services;
- Amount of advance taken / refund made;
- Rate of tax (CGST,SGST,IGST,UGST);
- Amount of tax charged in respect of taxable goods or services (CGST,SGST,IGST,UGST);
- Place of supply along with the name of state and its code, in the case of supply in the course of inter-state trade or commerce;
- Whether the tax is payable on reverse charge basis;
- Signature or digital signature of the supplier or authorized representative. If you are issuing electronic voucher, then such a signature is not required.
In case of refund voucher, you need to mention all the details as discussed above in addition to following two things;
- Cross reference of the receipt voucher
- Amount refunded
While raising invoice subsequent to receipt of advance, tax payable will be reduced by the amount of tax paid on the advance amount and balance amount if any may be adjusted against future supplies.
How to fill up GST return
For the advance money received in the tax period, GSTR-1 has to be filled up accordingly. In this case, supplier need to bifurcate advance payment received in to following two parts;
- Against intra-state supplies, and
- Against inter-state supplied
In addition to the above bifurcation, the supplier is required to mention details of each advance money received from supplier including CGST, SGST and IGST collected.