Advances refer to amounts received before the goods or service have been supplied. The time of supply rules determine when a taxpayer is required to discharge tax on a particular supply. The time of supply provisions are governed by Sections 12 to 14 of the Central Goods and Services Tax (CGST) Act, 2017.
Understanding Advance Received
In business, it is common practice to receive an advance for goods and services to be supplied at a later date. These advance receipts, also known as advances under GST, may be taxable under GST depending on the nature of supply and time of supply rules.
Advances Received on the Supply of Services
The general rule for the time of supply for services is the earliest of the following –
- Date of issue of invoice (if issued within the prescribed date)
- Date of provision of service (if the invoice is not issued within the prescribed date)
- Date of receipt of payment/advance
- Date on which the buyer shows receipt of services in their books of account
Advances Received on the Supply of Goods
For the supply of goods, advances received are not subjected to GST. (w.e.f. 15th November 2017 vide CGST Notification No.66/2017). The entire amount will be taxed when the supply actually happens, based on the time of supply rules.
The general rule for the time of supply for goods is the earliest of the following-
- Date of issue of invoice or last date the invoice is to be issued
- Date of payment
FAQ
Q1. Which document should I issue when I receive an advance?
You should issue a receipt voucher that includes:
- Details of the supplier and buyer
- Amount received
- GST rate and amount
- Place of supply
- Description of service
