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GST on advance receipts

Today, we will understand the scenario of GST on advance received by a Composition Dealer.

Provision under Section 10 of the CGST Act, cover a composition dealer which says that:

Section 10 (1) Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed one crore rupees, may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not exceeding,––

  1. 1% of the turnover in State or turnover in Union territory in case of a manufacturer or trader,
  2. 2.5% of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and subject to such conditions and restrictions as may be prescribed.

The provisions of Section 10 are subject to Section 9(3) & 9(4) of CGST Act, which would mean that the composition dealer will have make necessary compliance on account of reverse charge supplies (apart from payment of tax u/s 10 at the prescribed rate on his outward supplies). It may, however, be noted that provisions of Section 9(4) of the Act has been suspended till 31.03.2018 vide Notification no.38/2017-Central Tax (Rate) dated 13.10.2017.(The CBIC has notified that the provisions relating to Reverse Charge Mechanism (RCM) under Section 9(4) of the CGST Act, 2017/ Section 5(4) of the IGST Act, 2017 have been further Deferred/ Suspended by Govt. for 3 months upto 30 Septeber 2018. Earlier, the CBEC/ CBIC had notified on 23 March 2018 / 13 Oct. 2017 that implementation of these provisions has been deferred upto 30 June 2018 / 31 March 2018, respectively).

Section 10 of the Act , also suggests that a composition dealer has to pay, in lieu of tax payable by him, an amount calculated at the prescribed rate. The prescribed rate is applied on the turnover in the state of the composition dealer. Turnover in a state has been defined in Section 2(112) of the Act ibid as “turnover in State” or “turnover in Union territory” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis) and exempt supplies made within a State or Union territory by a taxable person, exports of goods or services or both and inter-State supplies of goods or services or both made from the State or Union territory by the said taxable person but excludes central tax, State tax, Union territory.

In Table 6 of the GSTR-4, the return for composition taxpayer, the tax on outward supplies made shall be computed as net of advance and goods returned. Further, in Table 8, consolidated statement of Advances paid/Advance adjusted on account of receipt of supply need to be detailed.

A combined reading of the above provisions would indicate that a composition dealer will not have to pay any tax on advances received, if such advances pertain to his outward supplies. The advances received and goods returned do not form part of taxable supplies and do not form part of the turnover in a state at the end of the quarter (tax period) for the purpose of computing turnover in a state.


  1. CBIC website

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