How to Manage Advance Paid for Supplies Attracting Tax on Reverse Charge

We have discussed the scenarios in which reverse charge is applicable in our previous blog . In these scenarios, when recipients make advance payment for supplies on which they are liable to pay tax on reverse charge, they will also have to pay tax on such advance payments. Persons who were registered under Service Tax are familiar with the similar requirement in the Service Tax regime.In this blog, we will guide you on how to effectively treat advance paid for supplies on which tax is to be paid on reverse charge.

Document to record when paying an advance under Reverse Charge

On paying advance for an order on which you are liable to pay tax on reverse charge, a Payment voucher is to be recorded. The tax applicable on the advance paid should be shown in the payment voucher. The tax amount should be calculated at the rate applicable to the goods and/or services for which the advance is paid. Based on whether the supplier is intrastate or interstate, the tax charged will be CGST + SGST/UTGST (intrastate) or IGST (interstate).

Important details to be captured in a payment voucher

1. If the supplier is registered, the supplier’s name, address and GSTIN2. Serial number of the payment voucher, not exceeding 16 characters, containing alphabets or numerals or special characters hyphen (-) or slash (/). It must be unique for a financial year.3. Date of issue4. Recipient’s name, address and GSTIN5. Description of the goods or services.6. Amount of advance paid.7. Rate of tax (CGST, SGST, IGST, UTGST or Cess)8. Amount of tax (CGST, SGST, IGST, UTGST or Cess)

9. If the supply is interstate, place of supply along with state name and code.10. Signature or digital signature of the supplier or his authorized representative.

Example:Ramesh Pvt. Ltd. in Delhi uses transportation services of Manish Transports in Delhi for transporting its goods to customers. For a consignment to be transported on 15th August, ’17, Ramesh Pvt. Ltd. pays an advance of Rs. 20,000 to Manish Transports on 1st August, ‘17. For this advance paid, the payment voucher to be recorded by Ramesh Pvt. Ltd. will appear as shown below:

How to furnish details of advance paid for supplies on which tax is to be paid on reverse charge?

Details of advance paid for supplies on which you are liable to pay tax on reverse charge should be furnished in Form GSTR-2:

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