GST on Advance Payment Made to Vendor, with Reverse Charge
The tax needs to be paid if supplier gets the payment first, therefore we need to calculate GST at the time of advance payment made to the vendor. However, when ‘supplier of goods’ receives advance payment, they aren't required to pay GST at the time of the receipt of advance payment, while GST is required to be paid in case of supply of services.
The process of GST calculation on advance payment to vendor has been explained in this document.
Create a general journal or a bank or cash payment voucher
- Choose the
icon, enter General Journal or Bank Payment Voucher or Cash Payment Voucher, and then choose the related link. - Select Vendor in account type and select relevant Vendor Code, GST vendor type and registration number should be filled in vendor master.
- Select G/L Account or Bank Account in balancing account type, and select the cash or the bank account.
- Advance Payment made to vendor does not include tax payment, as the purchaser is liable to pay tax under reverse charge. Hence, tax is applied straight away on base.
- GST on Advance Payment field needs to be activated on General Journal Line for computation of GST on Advance Payment. In addition, GST Group code and GST Place of Supply should not be blank for computation of GST.
For example, advance payment made to vendor against supply of services of INR 10,000 on which 18% GST (9% CGST and 9% SGST/UTGST in case of Intra-State or Intra-Union Territory transaction or 18% IGST in case of Inter-State transaction) has to be charged.
GST Calculation will appear in the Fact Box as following:
Component Amount GST Base Amount 10,000 CGST 900 SGST 900 IGST 1800 GL Entries for Advance Payment made to Vendor, will be as following:
Particulars Amount Vendor Account 10,000 SGST/UTGST Receivable (Interim) Account 900 CGST Receivable (Interim) Account 900 SGST/UTGST Payable Account -900 CGST Payable Account -900 Bank Account -10000
Reversal of advance payment made to vendor, where there are reverse charges
If the vendor advance needs to be corrected or the entry is wrongly posted, in such a case the entry can be reversed and new entry can be created.
Reversal GL Entries for Advance Payment made to Vendor, will be as following:
Particulars Amount Bank Account 10000 SGST/UTGST Payable Account 900 CGST Payable Account 900 SGST/UTGST Receivable (Interim) Account -900 CGST Receivable (Interim) Account -900 Vendor Account -10,000
Tip
In case of Inter-State Advance Payment, IGST will be calculated.