Now, no GST payments on advances received for supplying goods


New Delhi: The central government on Wednesday exempted businesses from paying goods and services tax (GST) on advances received for supplying goods in the future. The move would spare industry liquidity pain, confusion over tax liability on supplies that are yet to be made and help repair the disruption caused in the supply chain.

The exemption by the Union government on paying GST at the time of receipt of advances is in line with the decision of the GST Council. State governments are in the process of notifying similar exemptions under state GST laws.

The centre’s notification specified that businesses need to pay central GST (CGST) on supply of goods only at the time of supply. Experts described the decision as a big concession by the authorities to support taxpayers.

“It is a very significant relief, which industry was looking forward to. Under the earlier value-added tax (VAT) regime, there was no tax on advances for goods but was introduced under GST. Since the input credit was only available after receipt of goods, this led to working capital blockage for industry,” said Pratik Jain, partner and leader of indirect taxes, PwC India.

For services, GST continues to be payable in advance in line with the provisions under erstwhile service tax laws, said Jain.

Small businesses, which pay taxes and file returns on a quarterly basis, were exempted from the requirement of paying GST on advances earlier. The same benefit is now available to all businesses.

“This (the exemption) comes as a huge sigh of relief for businesses both in terms of compliances as well as working capital loss,” said Abhishek Jain, tax partner, EY India.

The central government issued a host of notifications on Wednesday, bringing into force decisions made by the GST Council last Friday at its 23rd meeting in Guwahati.

The federal indirect tax body decided to make major tax cuts, including by shifting 177 items from the highest slab of 28% to the 18% slab. It also decided to lower the tax rate on 54 other items.

The top tax rate of 28% is now restricted to luxury and demerit goods like pan masala, aerated water and beverages, cigars and cigarettes, tobacco products, cement, paints, perfumes, air-conditioners, dish washing machines, washing machines, refrigerators, vacuum cleaners, cars and two-wheelers, and aircraft and yachts.

The council also decided to cut the tax rate for restaurants, other than those housed in five-star hotels charging Rs7,500 tariff, to a flat 5% without tax credits from 15 November. Earlier, air-conditioned restaurants were taxed at 18% and non-air-conditioned ones were taxed at 12%.

Finance minister Arun Jaitley on Monday signalled more GST rate cuts and appealed to businesses to pass on the benefit of the recent reductions to consumers. “The tax rate rationalization process will always continue. Already, you have a situation today where every taxpayer can say that he has a bigger market and more reasonable tax rates,” he said.

Jaitley, however, qualified that the GST rate cuts will be presaged on revenue collections and then went on to point out that the tax burden on most items at present is less than what it used to be.