GST on Advance Payments: Receipt Vouchers, Refunds and the Goods Exception

Services: tax is payable on receipt

Section 13(2) makes the time of supply for services the earliest of the invoice date or the date of receipt of payment. An advance therefore triggers the liability in the month it is received, regardless of when the service is eventually supplied.

The tax is computed on the advance as a tax-inclusive amount if the contract is inclusive, or on the advance plus tax if exclusive. The eventual invoice is then issued for the full value, with the advance adjusted against it.

Goods: no tax until the invoice

Notification 66/2017 removed the requirement to pay tax on advances received for goods for all suppliers other than composition dealers. The time of supply is the date of the invoice, which for goods involving movement is before or at removal.

A business supplying both goods and services therefore has two different answers for the same cash receipt, depending on what the advance relates to. Mixed contracts need the advance apportioned.

The receipt voucher

Section 31(3)(d) requires a receipt voucher on receipt of an advance. Rule 50 prescribes its contents: supplier details, a consecutive serial number, date, recipient details, a description of the goods or services, the amount of the advance, the rate and amount of tax, the place of supply for inter-State supplies, and whether tax is payable on reverse charge.

Two defaults handle uncertainty. Where the rate of tax is not determinable, tax is paid at eighteen per cent. Where the nature of the supply — inter-State or intra-State — is not determinable, it is treated as inter-State and IGST is charged.

When the order falls through

If the supply does not happen and no invoice has been issued, Section 31(3)(e) requires a refund voucher on returning the advance. The tax paid on the advance is then adjusted in the return for the period in which the refund voucher is issued.

The refund voucher must reference the original receipt voucher. Returning an advance without issuing one leaves the tax paid and unrecovered, which is a straightforward cash loss.

Reporting advances in GSTR-1

Advances on which tax has been paid are reported in table 11A of GSTR-1, and their adjustment against subsequent invoices in table 11B. Failing to adjust them produces a permanent mismatch between the tax paid and the invoices reported, which is the kind of discrepancy that surfaces at annual reconciliation.

For businesses taking regular retainers, this reconciliation is easier maintained monthly than rebuilt at year end.

Frequently asked questions

### Do I pay GST on an advance for goods?

No, not since Notification 66/2017, unless you are a composition dealer. The liability for goods arises on the invoice date. For services the position is unchanged: tax is payable on the advance in the month it is received.

### What document do I issue for an advance?

A receipt voucher under Section 31(3)(d), with the contents prescribed by Rule 50. It is not a tax invoice and the recipient cannot claim credit against it. The credit becomes available when the tax invoice is eventually issued for the supply.

### What if I do not know the GST rate when the advance is received?

Pay at eighteen per cent. Rule 50 provides that where the rate is not determinable at the time of receiving the advance, tax is paid at eighteen per cent, with the correct rate applied and adjusted when the invoice is issued.

### Can the customer claim input credit on an advance?

No. Section 16(2)(a) requires possession of a tax invoice, and a receipt voucher is not one. The credit arises when the supplier issues the tax invoice and reports it so that it appears in the recipient's GSTR-2B.