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The rules for the time of supply under GST plays a very important role in determining when to pay tax for a transaction. The general rule for time of supply for services is earliest of the following –
The second point above is receipt of advance. This means that if the advance is received before the issue of the invoice the time of supply would be the date of receipt of advance. Thus taxpayers receiving advance must pay GST on the money received.
*Note: For the supply of goods advance received is not subject to GST. The entire amount will be taxed on the issue of the invoice (w.e.f. 15th November 2017).
A taxpayer has to take the following actions on receipt of advance:
Issue a Receipt Voucher
The supplier has to issue a receipt voucher to the person paying in advance. The receipt voucher will contain details like amount of advance, the rate of tax applicable, description of goods or services, etc.
Calculate Tax on Advance Received
You have to calculate tax on advance and pay tax while filing the return for the month. The advance received should be grossed up. This means that the advance received is considered inclusive of GST. When the rate of tax cannot be determined during receipt of advance GST @ 18% has to be charged. Also if the point of sale cannot be ascertained the advance is considered as interstate supply and IGST has to be paid.
Let us understand the treatment of advance under GST using an example:
Mr. A entered into a contract of providing services worth Rs 10,00,000 by 20th February. The total invoice value along with GST @ 18% is Rs 11,80,000. He received an advance of Rs 4,00,000 on 10th January and balance payment of Rs 7,80,000 on 20th February. The invoice was also raised on 20th February.
Here is how you will calculate tax:
It is very important to note here that the taxpayer paying advance is not eligible to claim ITC on advance paid. The taxpayer can claim ITC on advance paid only on receipt of services. This means that in the above example recipient will be eligible to claim ITC on an advance in February.
Note: Say, the above contract was entered to supply the goods instead of providing services. Then, the recipient is not liable to pay the tax on the receipt of the advance on 10th January. However, he has to pay the entire tax amount of Rs 1,80,000 on the date of issue of the invoice, i.e. 20th February.
Any advance received by a taxpayer for which invoice is not issued should be mentioned in Pt.11A of GSTR 1. Details of each advance need not be given, a cumulative figure of all the advances received has to be provided.
The advance should be first segregated into Interstate and intrastate advances. The gross figure of advances received should be mentioned under Gross Advance Received/ Adjusted. After this, the tax payable i.e. CGST and SGST in case of intrastate and IGST in case of interstate advances should be stated. This GST on advance is added to the tax liability of the supplier.
Advances received can be easily recorded in ClearTax GST software. Here is how you can do it.