If you receive advance payments from customers – either for goods or services – you need to understand how GST on Advances applies. The time of supply determines when you must pay GST to the government.
Table of Contents
What is “Time of Supply” Under GST?
Time of Supply under GST means the point at which a supply is deemed to have been made, and therefore, GST becomes payable.
It depends on:
- Whether the supply is goods or services
- The date of invoice, date of delivery, and date of payment
Relevant Legal Sections
| Transaction Type | Applicable Section |
|---|---|
| Supply of Goods | Section 12 of CGST Act |
| Supply of Services | Section 13 of CGST Act |
| Receipt Voucher | Section 31(3)(d) |
| Refund Voucher | Rule 51 of CGST Rules |
| Notification Exempting Advance on Goods | Notification 66/2017 – Central Tax |
Time of Supply for Goods (Section 12)
The time of supply is the earlier of:
- Date of invoice
- Date of delivery of goods
However, as per Notification 66/2017, GST is not required to be paid on advance received for goods by registered persons. GST becomes payable only at the time of issuing the invoice or delivery.
Time of Supply for Services (Section 13)
The time of supply is the earlier of:
- Date of invoice (if issued within 30 days of service)
- Date of payment (including advance)
This means GST must be paid on advances received for services, even before the invoice is raised.
Examples
Example 1 – Services
Advance received: ₹50,000 on 5 August 2025
Invoice raised: 20 August 2025
Service rendered: 18 August 2025
Time of Supply: 5 August 2025 (earliest of invoice/payment)
GST payable in August return
Example 2 – Goods
Advance received: ₹30,000 on 10 August 2025
Goods delivered: 25 August 2025
Invoice issued: 24 August 2025
Time of Supply: 24 August 2025 (no GST on advance, GST payable on invoice)
Documents to be Issued
| Document | When to Issue | Applicable For |
|---|---|---|
| Receipt Voucher | At the time of receiving advance | Services |
| Refund Voucher | If advance is refunded or order cancelled | Services |
| Invoice | At the time of supply or delivery | Both Goods & Services |
| Adjustment Entry | While billing the balance amount | Services |
Adjustment of GST on Advances in Invoice
If advance is already taxed, you must adjust it at the time of issuing the final invoice.
Example:
Advance received: ₹10,000 (GST paid @18% = ₹1,800)
Final Invoice: ₹50,000
Remaining taxable value: ₹40,000
GST now payable on ₹40,000 only
What If Advance is Cancelled?
In case of cancellation after advance is received:
- Refund the amount to the customer
- Issue a refund voucher
- Reverse the GST paid in GSTR-3B (if already paid)
This process is allowed under Rule 51 of the CGST Rules.
Common Errors and Their Impact
| Mistake | Impact |
|---|---|
| Not paying GST on advance for services | Notice and demand with interest |
| Paying GST on advance for goods (post-2017) | Unnecessary cash outflow |
| Not issuing receipt or refund vouchers | Procedural non-compliance |
| Reporting mismatch in GSTR-1 and 3B | Portal scrutiny and system-generated notice |
Summary: Comparison Table
| Particulars | Goods | Services |
|---|---|---|
| GST on Advance? | Not required (Notification 66/2017) | Required |
| Receipt Voucher Required? | No | Yes |
| Refund Voucher (if cancelled) | Yes | Yes |
| Time of Supply | Invoice or delivery | Advance or invoice (whichever is earlier) |
FAQs
Q1. Can advance tax be adjusted against invoice later?
Yes. GST paid on advance can be adjusted when final invoice is raised.
Q2. What happens if the advance is refunded?
Issue a refund voucher and reverse the GST liability in the next GSTR-3B.
Q3. What if I miss paying GST on advance for services?
You may have to pay interest under Section 50 at 18% per annum and may receive a notice.
Tips for Businesses
- Maintain proper tracking of all advances received
- Use software or automated trackers to avoid missing GST deadlines
- Reconcile GSTR-1 and 3B monthly
- Train staff on document handling like receipt and refund vouchers
- Issue invoices within prescribed time to avoid liability mismatches
Conclusion
Understanding GST on advances and time of supply is crucial for every GST-registered business. In summary:
- For goods, no GST on advance (as per current rules)
- For services, GST must be paid on advance in the same tax period
- Keep documents in order and follow correct procedures
Staying updated and maintaining proper GST discipline helps avoid future penalties, interest, and scrutiny.
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