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February 20, 2023
By
Paramita

Taxability of Advance Receipt under GST Regime

India's Goods and Services Tax (GST) system has been in place for three years, but there are still many ambiguities to be resolved. One such area is the taxability of advance receipts under GST. GST is an indirect tax that applies to the supply of goods and services, and advance receipts are payments made by customers to suppliers prior to the supply of the goods or services. In this article, we will explore the taxability of advance receipts under GST.

The GST regime has replaced a complex and multi-layered taxation system with a unified tax system. GST is levied on the value of the goods or services supplied, and the tax is collected at each stage of the supply chain, including manufacture, sale, and consumption. One of the challenges in the GST system is determining the taxability of advance receipts.

Advance receipts are payments made by customers to suppliers before the actual supply of goods or services. These payments are usually made as a deposit or advance payment, and are generally made to secure the supply of the goods or services in the future. In the GST regime, the taxability of advance receipts depends on the nature of the supply, the time of supply, and the value of the supply.

The GST law defines a supply as the transfer of goods or services for consideration. Consideration is defined as any payment made or to be made for the supply of goods or services. Therefore, any advance payment made by the customer to the supplier is considered as consideration for the supply of goods or services.The time of supply is the point in time when the tax is levied. In the case of goods, the time of supply is the earliest of the following: a) the date of issue of invoice by the supplier; b) the date of receipt of payment by the supplier; or c) the date of delivery of goods. In the case of services, the time of supply is the earliest of the following: a) the date of issue of invoice by the supplier; b) the date of receipt of payment by the supplier; or c) the date of provision of services.

If the time of supply of goods or services is before the receipt of advance payment, then GST is levied on the entire value of the supply. However, if the time of supply is after the receipt of advance payment, then GST is levied only on the value of the supply that is not covered by the advance payment.

For example, if a customer makes an advance payment of Rs. 10,000 to a supplier for the supply of goods worth Rs. 50,000, and the goods are supplied after the payment is received, then GST is levied on the remaining Rs. 40,000.

However, if the goods are supplied before the advance payment is received, then GST is levied on the entire value of Rs. 50,000.

There are some exceptions to this rule. If the advance payment is made for the purchase of goods or services that are not taxable under GST, then no GST is levied on the advance payment. Similarly, if the advance payment is made for the purchase of goods or services that are exempt from GST, then no GST is levied on the advance payment.

In conclusion, the taxability of advance receipts under GST depends on the nature and time of supply, as well as the value of the supply. If the time of supply is after the receipt of advance payment, then GST is levied only on the value of the supply that is not covered by the advance payment. However, if the time of supply is before the receipt of advance payment, then GST is levied on the entire value of the supply. It is important for small and medium business owners and startup founders to understand these rules in order to comply with the GST law.

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