What Happens if Contract Price is Revised after GST Implementation?

As an Indian Small and Medium business owner or Startup founder, you may have questions about what happens if contract prices are revised after the implementation of GST. In this article, we will explore the implications of revising contract prices after GST has been implemented.

What is GST?

GST or Goods and Services Tax is a unified tax system that has been implemented in India since July 1, 2017. It is a single tax that covers all goods and services, replacing a slew of indirect taxes that were previously levied by the central and state governments.

Under the GST regime, businesses have to register themselves under GST and comply with the regulations laid down by the GST Council. They are also required to charge GST on their supplies and file regular returns with the GST authorities.

What happens if contract prices are revised after GST implementation?

There are two scenarios to consider when it comes to revising contract prices after GST has been implemented:

Scenario 1: The revised contract price is lower than the original price
Scenario 2: The revised contract price is higher than the original price

Scenario 1: The revised contract price is lower than the original price

If the revised contract price is lower than the original price, the supplier can issue a credit note to the customer. A credit note is a document that is issued by the supplier to the customer when the original invoice amount has been reduced. The customer can use the credit note to reduce their GST liability for the current or future tax periods.

For example, if the original contract price was Rs. 1,00,000 and the revised price is Rs. 90,000, the supplier can issue a credit note for Rs. 10,000 to the customer. The customer can use this credit note to reduce their GST liability for the current or future tax periods.

Scenario 2: The revised contract price is higher than the original price

If the revised contract price is higher than the original price, the supplier can issue a supplementary invoice to the customer. A supplementary invoice is a document that is issued by the supplier to the customer when the original invoice amount has been increased. The customer is required to pay the additional amount and the supplier is required to charge GST on the additional amount.

For example, if the original contract price was Rs. 1,00,000 and the revised price is Rs. 1,10,000, the supplier can issue a supplementary invoice for Rs. 10,000 to the customer. The customer is required to pay the additional amount and the supplier is required to charge GST on the additional amount.

What happens to old contracts if contract price is revised after GST?

If the contract was entered into before the implementation of GST and the contract price is revised after the implementation of GST, the revised price will be subject to GST. This is because GST is applicable on all supplies made after the implementation of GST, regardless of whether the contract was entered into before or after the implementation of GST.

For example, if a contract was entered into before the implementation of GST and the contract price is revised after the implementation of GST, GST will be applicable on the revised price.

Conclusion

In conclusion, revising contract prices after the implementation of GST can have implications for both the supplier and the customer. It is important to understand the scenarios under which contract prices can be revised and the implications of revising contract prices after GST has been implemented. If you have any questions or concerns about revising contract prices after GST implementation, it is recommended that you consult with a qualified GST professional.