Treatment of GST paid on Advance amount refunded subsequently

Goods and Services Tax (GST) is a value-added tax levied on the supply of goods and services in India. When businesses pay advances to suppliers or vendors for goods or services, they are required to pay GST on the advance amount. This is because the advance payment is considered to be a supply of goods or services under GST. However, in some cases, the advance may be refunded subsequently. In such cases, businesses can claim a refund of the GST paid on the advance amount.

Conditions for claiming refund of GST on advance amount

Businesses can claim a refund of the GST paid on the advance amount if the following conditions are met:

1. The advance payment was made before the supply of goods or services.

2. The supplier or vendor has not supplied the goods or services for which the advance was paid.

3. The supplier or vendor has refunded the advance amount to the business.

Procedure for claiming refund of GST on advance amount

Businesses can claim a refund of the GST paid on the advance amount by following the procedure below:

1. File Form GST RFD-01 for claiming the refund.

2. Provide the details of the original invoice and the advance payment in the refund application.

3. Provide the details of the refund voucher issued by the supplier or vendor.

4. Submit the refund application along with the necessary documents to the GST authority.

5. The GST authority will verify the refund application and process the refund if it is found to be in order.

Impact of refund of GST on advance amount on input tax credit

If a business has claimed input tax credit on the GST paid on the advance amount, the refund of GST on the advance amount will have an impact on the input tax credit. The input tax credit claimed on the GST paid on the advance amount will be reversed, and the business will have to pay the corresponding amount of tax.

Conclusion

Businesses can claim a refund of the GST paid on the advance amount if the advance payment was made before the supply of goods or services, and the supplier or vendor has not supplied the goods or services for which the advance was paid. The refund of GST on the advance amount will have an impact on the input tax credit claimed by the business.