📝 GST on Advances, TDS Applicability & Impact of GST Rate Change (Effective 22.09.2025 – With Example)
Businesses often struggle with the treatment of advances under GST, especially when rates change. Let’s decode the rules step by step with references to the CGST Act, 2017, and key notifications/circulars.

1️⃣ Time of Supply – Goods vs Services
📌 For Goods (Section 12, CGST Act)

• Time of supply = earliest of:
  • Date of invoice, OR
  • Last date the invoice was required to be issued, OR
  • Date of receipt of payment.
• ⚠️ However, Notification No. 66/2017–CT (15.11.2017) clarified:
  • Advances are not a trigger for goods.
  • ✅ GST on goods becomes payable only at invoice/delivery, not on advance.

📌 For Services (Section 13, CGST Act)

• Time of supply = earlier of:
  • If invoice issued within prescribed period → date of invoice OR date of payment (advance), whichever is earlier.
  • If invoice not issued within time → date of provision of service OR payment, whichever is earlier.
  • Fallback → date of entry in books of recipient.
• ✅ Hence, GST is payable on advances for services.

👉 Quick Takeaway:

• Goods (e.g., coal) → No GST on advance.
• Services → GST on advance at prevailing rate.

2️⃣ GST TDS on Advances

• Governed by Section 51 of CGST Act.
• Deductors: Govt departments, PSUs, local authorities, notified entities.
• Rate: 2% (1% CGST + 1% SGST or 2% IGST).
• Applies only on payments made by notified deductors.

✅ TDS is NOT applicable on normal trade advances between private businesses.

3️⃣ GST Rate Change Scenarios – W.e.f. 22.09.2025
📌 Background:

• Till 21.09.2025: Coal taxed @ 5% GST + ₹400/tonne cess.
• From 22.09.2025: 18% GST only (no cess).

🔹 Case A – Advance before rate change, Invoice after rate change

• Goods: No GST on advance → GST payable at invoice time → 18% GST (no cess).
• Services: Advance portion taxed at old rate (5%). Remaining invoice value taxed at new rate (18%).

🔹 Case B – Invoice before rate change, Payment after rate change

• Time of supply = invoice date.
• GST @ old rate (5% + ₹400 cess) applies. Payment timing irrelevant.

🔹 Case C – Both advance & invoice before rate change

• Entire supply taxed at old rate (5% + ₹400 cess).

🔹 Case D – Both advance & invoice after rate change

• Entire supply taxed at new rate (18%).

4️⃣ Accounting & Compliance Treatment
📌 Goods (Coal Example)

• Advance received (before invoice) →

   

  Bank A/c Dr
To Advance from Customer A/c (Liability)


  (No GST entry, since GST not applicable on advance for goods).

• Invoice issued after 22.09.2025 →

   

  Advance from Customer A/c Dr
Debtors A/c Dr
To Sales A/c
To Output GST A/c (18%)


📌 Services (Advance received before rate change)

• At advance:

   

  Bank A/c Dr
To Advance from Customer A/c
To Output GST A/c (at old rate)


• At invoice (after rate change):

   

  Advance from Customer A/c Dr
Debtors A/c Dr
To Sales A/c
To Output GST A/c (balance @ new rate)


5️⃣ Key Legal References

• Section 12, CGST Act – Time of supply of goods.
• Section 13, CGST Act – Time of supply of services.
• Notification No. 66/2017–CT – No GST on advances for goods.
• Section 51, CGST Act – GST TDS applicability.
• Circular No. 137/07/2020–GST – Clarifications on rate change adjustments.

✅ Final Summary

• Goods: No GST on advance; GST payable only on invoice date at prevailing rate.
• Services: GST payable on advance at old rate; balance taxable at new rate if rate changes.
• TDS: Not applicable on normal trade advances; only applies to notified deductors.
• Rate change (22.09.2025 coal case):
  • Advance before + Invoice after → 18% GST only.
  • Invoice before + Payment after → Old rate (5% + ₹400 cess).
  • Both before → Old rate applies.
  • Both after → New rate applies.

 Businesses must track time of supply rules carefully during GST rate transitions to avoid errors in tax liability and compliance.

If GST is not applicable on advance received for goods but GST TDS applicable then how to deal with it. as in case where payer required to pay GST TDS and receiver is not required to pay full GST till invoicing. which document is issued by receiver of advnace for receiving advance. 

GST TDS on Advance Payments – Process, Rules & Example

1️⃣ Legal Provision

• Section 51, CGST Act, 2017 – TDS is to be deducted by notified deductors (Govt, PSU, local authority, etc.) on payments made to suppliers of taxable goods/services, if the contract value exceeds ₹2.5 lakh.
• TDS Rate = 2% (1% CGST + 1% SGST, or 2% IGST).
• TDS to be deducted at the time of:
  • Payment (including advance), or
  • Booking the liability in books, whichever is earlier.

2️⃣ Process Flow – Advance Received from a Notified Deductor
🔹 Step 1 – Payer (Deductor)

• When advance is paid, check:
  • Is it a contract > ₹2.5 lakh?
  • Is the supplier registered?
  • Is supply taxable under GST?
• If yes → Deduct GST TDS @ 2% on the advance amount (excluding GST).

🔹 Step 2 – Supplier (Deductee)

• On receiving advance, supplier issues a Receipt Voucher (Rule 50 of CGST Rules).
• GST on advance:
  • Goods → No GST payable (Notification 66/2017).
  • Services → GST payable on advance.

🔹 Step 3 – Deductor Compliance

• Deposit deducted TDS with Govt by 10th of next month via GSTR-7.
• Issue TDS Certificate (GSTR-7A) to supplier within 5 days of filing.

🔹 Step 4 – Supplier Claim

• Supplier gets credit of deducted TDS in Electronic Cash Ledger (Section 51(5)).
• This can be used for paying future GST liability.

3️⃣ Example
Case A – Goods (Coal Supply)

• Govt department gives an advance of ₹5,00,000 on 15.09.2025.
• Supplier issues a Receipt Voucher (no GST on advance as it is goods).
• Payer deducts GST TDS = ₹10,000 (2% of ₹5,00,000).
• Supplier’s GST liability will arise only when invoice is issued (say on 25.09.2025 at 18% GST).
• TDS already deducted is reflected in supplier’s cash ledger.

Case B – Services (Consulting Contract)

• PSU pays an advance of ₹2,00,000 on 10.09.2025.
• Supplier issues a Receipt Voucher, charging GST @ 18%.
• GST liability = ₹36,000 (payable by supplier immediately).
• Payer deducts GST TDS = ₹4,000 (2% of ₹2,00,000).
• Deductor files GSTR-7 and issues certificate.
• Supplier gets ₹4,000 credit in cash ledger, which can be adjusted while paying GST.

4️⃣ Important Clarifications

• Even if GST is not payable on goods advances, TDS is still to be deducted if payer is a notified deductor.
• If later the contract is cancelled, supplier may issue Refund Voucher and deductor can adjust TDS in returns.
• Supplier must maintain proper documentation – Receipt Voucher, TDS Certificate, GSTR-2A/2B reconciliation.

✅ Final Summary

• Advance from Govt/PSU (notified deductor) → GST TDS applies.
• Advance from private customer → No GST TDS.
• Supplier must issue Receipt Voucher for advance received.
• Payer deducts TDS at 2% of taxable value and deposits via GSTR-7.
• Supplier gets credit of deducted TDS in cash ledger.
• For goods → No GST on advance, but TDS applies.
• For services → Both GST & TDS apply on advance.