🔹 Introduction

In GST, the time of supply determines when tax is payable. Advances received before issuing invoices create GST liability in specific cases. Many SMEs, traders, and service providers face confusion on whether GST applies at the time of advance or invoice. This article explains the rules, compliance treatment, and common issues as updated for FY 2024-25.

(Reference: Sec. 12 & 13 of CGST Act, Rule 50 & 51 of CGST Rules, CBIC circulars till 2025)

🔹 GST on Advances – Legal Position

✅ For Goods

• Earlier, GST was payable on advance received for goods.

• From Notification No. 66/2017, GST on advances for goods is exempt (except for notified persons).

• Therefore, as of 2025, GST is not payable on advance received for goods (except for composition dealers or special cases).

✅ For Services

• GST is payable on advance received for services.

• Time of supply = Date of advance receipt (to the extent of advance).

• Invoice to be issued later when service is completed.

🔹 Adjustment of GST when Invoice is Issued

• When final invoice issued, adjust GST already paid on advance.

• Balance GST payable on remaining value.

• In case of refund of advance → GST already paid can be adjusted/refunded.

🔹 Special Exemptions

• Composition scheme taxpayers: Cannot collect GST on advance; tax paid on total turnover.

• Notified goods (real estate, construction, etc.): Advance taxable under RCM provisions.

• Exports: Advances received in convertible foreign exchange → treated as zero-rated.

🔹 Step-by-Step Compliance for Advances

📌 Step 1: Receive advance from customer.
📌 Step 2: If for services → issue Receipt Voucher under Rule 50.
📌 Step 3: Pay GST on advance in next GSTR-3B (if applicable).
📌 Step 4: When final invoice issued, adjust tax paid on advance.
📌 Step 5: If advance refunded → issue Refund Voucher under Rule 51.

🔹 Practical Examples

Example 1: Service Provider
A consultant receives ₹1,00,000 advance in April 2025 for project to be executed in June. GST @18% = ₹18,000 payable in April GSTR-3B. When final invoice of ₹5,00,000 issued in June, GST = ₹90,000. Already paid ₹18,000 adjusted, balance ₹72,000 payable.

Example 2: Trader in Goods
A trader receives booking advance ₹50,000 for supply of goods. No GST payable on advance. GST payable only when invoice issued on supply.

Example 3: Cancellation Case
Hotel receives advance of ₹20,000 for booking. GST @18% = ₹3,600 paid in advance month. If booking cancelled and amount refunded, hotel issues refund voucher → adjusts GST in subsequent return.

🔹 Common Mistakes

• Charging GST on goods advances (unnecessary).

• Not issuing receipt voucher for service advances.

• Forgetting to adjust GST paid on advance when final invoice issued.

• Not issuing refund voucher in case of cancellation.

🔹 Penalties

• Non-payment of GST on service advances → Interest @18% u/s 50.

• Wrong credit claimed → Penalty under Sec. 74A (from FY 2024-25).

• Non-issuance of vouchers → Penalty under Sec. 122.

🔹 Best Practices

• ✅ Maintain advance register separately.

• ✅ Train staff to issue receipt/refund vouchers.

• ✅ Reconcile advances with GSTR-3B monthly.

• ✅ Avoid charging GST on goods advances (unless notified).

• ✅ Adjust refunds promptly to avoid disputes.

🔹 FAQs

Q1. Is GST payable on advances for services?
➡️ Yes, GST payable at time of advance receipt.

Q2. Is GST payable on advances for goods?
➡️ No, exempt except notified cases.

Q3. What if advance is refunded?
➡️ Issue refund voucher and adjust tax already paid.

Q4. Can ITC be claimed on GST paid on advances?
➡️ Yes, ITC available to recipient when invoice issued.

Q5. Is invoice mandatory at time of advance?
➡️ No, only receipt voucher required.

🔹 Conclusion

GST treatment of advances differs for goods and services. Businesses must carefully track advances, issue proper vouchers, and adjust GST at invoice or refund stage. Mistakes can lead to interest, penalties, and ITC mismatches.

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