Understanding Tax Implications of Advances in the GST Framework

Understanding Tax Implications of Advances in the GST Framework

In the realm of Goods and Service Tax (GST), questions often arise about the taxability of various forms of advances. This blog aims to provide clarity on this matter by examining the relevant provisions of the law.

Determining Tax Liability:

The determination of whether a transaction is subject to tax hinges significantly on the provisions governing the time of supply under GST.

Under Section 12 of the CGST Act, 2017, the time of supply of goods is determined as the earliest of the following:

Section 54 of the Income-tax Act 1961

Section 54 provided benefits exclusively to individuals or Hindu Undivided Families (HUF).

Of particular note is the second point, which pertains to the receipt of advance payments. This implies that a taxpayer who receives an advance must remit GST on the sum received.

It’s important to note that for the supply of goods, advances received are not immediately subject to GST. Instead, the entire amount becomes taxable upon the issuance of the invoice.

Notifications and Compliance:

Subsequently, Notification No. 40/2017-Central Tax dated 13.10.2017 was issued, specifying that a registered person shall pay tax on outward supplies of goods at the time of supply, as outlined in Section 12(2)(a) of the CGST Act, 2017, provided they meet the following criteria:

Furthermore, Notification No. 66/2017-Central Tax dated 15.11.2017 stipulates that if an advance is received for the supply of services, the supplier is liable to pay tax. This notification exempts only advances received for the supply of goods.

Conclusion:

In conclusion:

Liked the post? Share this:
editor
editor@nyca.in
No Comments

Post A Comment

Disclaimer

We have taken all steps to ensure that the information on the website has been obtained from reliable sources and is accurate. However, this website is not intended to give legal, tax, accounting or other professional guidance. We recommend appropriate advice be taken prior to initiating action on specific issues.