GST On Advance Payment Received From Customers

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GST (Good and Services Tax) is a tax paid on the product or service once it is delivered or at the instance of receipt of payment. So, what about the situations where the supplier asks for advance payments on goods/services? When and how much tax needs to pay for advance payments received in India?
Are there any thresholds to assess or the tax calculation is based on the advance amount received? This article will help you understand how GST needs to be paid on advance payments received in India.

GST on Advance Payment

Advance payment is when you pay for something before you get it. This could be like when you order something online and you pay for it before it comes. Another example would be if you go to a restaurant and you pay for your meal before you eat it.
From a business perspective, it could be seeking an advance of Rs.10,000 for a shipment of goods worth Rs.1,00,000. Suppliers choose to get an advance payment to mitigate the risk of non-payment and also to have some working capital for themselves.
In India, GST needs to be paid on all transactions where there is a supply of goods and/or services. The general taxation point is 'supply'. So, it gets a little tricky when it comes to advance payments.
When it comes to the supply of goods, you will be taxed only on the entire amount on the issue of the invoice. So, any advance received is not subject to GST unless the whole invoice is paid off (according to notification No. 66/2017 dated 15-11-2017). The supply of services, it's a little different.
The money received for supply of service is taxed at the date of issue of invoice or date of receipt of payment/advance or date on which the invoice should be issued, whichever is the earliest. So, if the advance is received before the date of invoice, GST is still applicable on the advance amount on the date it's made.

Receiving Advance Payments? Do This.

If GST is applicable for the advance payments you are collecting, then make sure you do the following:
Give an Advance Payment Receipt
This will act as a record of the advance payment you are receiving receipt should contain the following details:

  • Name and address of the supplier and recipient
  • GST number of both
  • Date of issue
  • Details of goods/services
  • Amount of advance received and tax rate
  • Location of supply

Mention Advance Payments under Form GSTR-1

Every business needs to file GST return periodically. The due dates are the 10th, 15th and 20th of the next month (For July, the filing will happen in August). In the returns, businesses need to mention all the supplies made in the relevant period.
For advance payments, it is important to mention them separately under Form GSTR-1. This will help you determine the amount of GST due on your advance payments.
The advance should first be segregated into interstate and intrastate advances. The gross figure of any received funds is noted under 'Gross Advance Received/Adjusted.' Following that depending on whether the transaction is interstate or intrastate, tax payable should be laid down as IGST or CGST & SGST respectively. If the point of supply cannot be determined at the time of receiving advance, it should be considered as Interstate supply. If the rate of GST cannot be determined at the time of receiving advance, the rate should be taken as 18%. 

Calculate Tax

The tax rate in advance is the same as the rate on the goods/services supplied. And when you are collecting advance, you need to ensure that the tax rate is included in it as you will be paying GST on the advance while filing the returns. Let's see how the tax can be calculated with an example. 
Mr A is a supplier of service and has received an advance of Rs.5,000 from Mr B for the provision of service worth Rs.50,000. The final invoice with 18% of tax will reflect a sum of Rs.59,000 (Rs.50,000+Rs.9000 GST).
On the occasion that the final invoice isn't issued by the time you need to file GST returns, you will have to mention the advance received and pay tax just for that. Assuming that the applicable GST rate is 18%, Mr A will have to pay Rs.900 (18% of Rs.5,000) as GST while filing the returns.
Note that this will not apply in case it is goods that are supplied and not services.
If you want to escape the hassle of doing all this on your own, our team of GST experts are ready to help you with your GST registration and GST filings.

Author : Nivetha

Date     : 05-Jul-2022