Arjuna (Fictional Character): Krishna, from some peculiar provisions of GST, GST on advance payment is one. Please explain in detail the provision of GST on Advance.
Krishna (Fictional Character): Arjuna, in the present situation in excise and VAT laws it is not required to pay tax on advances. Only as per Service tax provisions the taxpayer has to pay service tax on the Advances. Now taxpayer will have to pay GST on the advancement of goods and services in GST.
Arjuna: Krishna, what is the GST on Advance exactly?
Krishna: Arjuna, if anyone paid advance before the supply of goods or services will have to pay GST on it. Ex. If a person has given order for buying stationery amounting to Rs. 10 Lakhs and gave advance of Rs. 5 Lakhs, then he have to pay GST on that advance to the supplier at that time only.
Arjuna: Krishna, What should the supplier do when he gets the advance?
Krishna: Arjuna, at the time of receiving advance, supplier will have to give the Receipt voucher. The receipt voucher should contain Name of supplier, address, GST number, unique alphanumeric receipt voucher number of less than 16 characters, date of issue, name of the person who gave advance, his address, GST number, description of goods or services, amount of advance, rate of GST, amount of GST, and signature of supplier. Also at the time of filing of GST return the details of such receipts are to be mentioned in the return.
Arjuna: Krishna, what to do after supplying of goods or services?
Krishna: Arjuna, Supplier will prepare a tax invoice after supplying of goods or services and deduct the amount of advance received from it and will charge GST on remaining amount. Ex. If a supplier supplied stationery of Rs. 10 Lakhs and he already received an advance of Rs. 5 Lakhs before 3 months then he have to charge GST on remaining amount of Rs. 5 Lakhs in the tax invoice. He should mention the information about Advance already received in tax invoice.
Arjuna: Krishna, when will the person get credit on goods or services who gave advance?
Krishna: Arjuna, after giving the advances to the supplier, the buyer will not get the credit of GST. Whenever supplier supplies goods or services and gives the tax invoice to the receiver then only he gets credit of GST. Ex. If 'A' gives Rs. 10 Lakhs as advance on 5th July to “B” for buying machinery of Rs. 15 Lakhs and gives Rs. 1 Lakh on it as GST. On 10th October, 'B' supply the Machinery and in tax invoice mentions Rs. 15 Lakhs as cost and will charge GST of Rs. 50,000/- on the remaining payment of Rs. 5 Lakhs. Then 'A' will get credit of Rs. 1.5 Lakh.
Arjuna: Krishna, what if the rate of GST on goods or services is not determinable while availing the advances or if the type of supply is not ascertained then what to do?
Krishna: Arjuna,
- If the rate cannot be ascertained at the time of taking advances, then GST should be charged @18% Ex. If the person gave orders and advances to make a thing. But if the GST rate is not fixed on that, then 18% GST will have to be paid on those advances.
- If the type of supply cannot be ascertained while taking advance, consider this supply as interstate supply. E.g. The place of manufacturing in two different states but if the state is not confirm from where supply will be made at the time of taking advance, then it should considered as inter-state supply.
Arjun: Krishna, what one should learn from this?
Krishna: Arjuna, Because of these provisions both the supplier and receiver should keep proper books of accounts. Before buying goods or services, the buyer will have to pay GST on the advance amount and he will receive the credit at the time of supply of goods or services. The money will be blocked for this until the supply is completed. Similarly, the supplier will have to charge GST on the remaining amount by deducting advance from the total amount. Every small or large business will have to pay attention for the accounting and must comply with the law.
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