29 Feb 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).
- Date of invoice issuance
- Date of receipt of payment/advance
- Date on which the invoice should be issued
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:
- Aggregate turnover in the preceding financial year should not exceed 1 crore and 50 lakh rupees, or the aggregate turnover in the year of registration is expected to be less than 1 crore and 50 lakh rupees.
- The taxpayer has not opted for the composition scheme under Section 10 of the said Act.
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:
- For the supply of services, advances are always taxable.
- For the supply of goods:
- Advances taken between 1.07.2017 and 13.10.2017 require tax payment.
- Advances taken between 14.10.2017 and 15.11.2017 necessitate tax payment only for registered persons with an aggregate turnover exceeding 1.5 crore in the preceding financial year or during the year of registration.
- Advances taken after 15.11.2017 incur no tax liability until the issuance of the invoice.
No Comments