Received advance money for supply of goods but forfeited by us since full money not received
This query is : Open
24 September 2025
We received advance money of Rs3 lakhs by a party but party did not gave us balance 2 lakhs rupees. We forfeited the party's amount.how will we show in income tax? Is any gst payable on the forfeited amount although no supply of goods was made by us to the party? Please advise?
24 September 2025
Wii I have to pay gst on advance payment receipt although I have not sold any materials to them.
24 September 2025
Wii I have to pay gst on advance payment receipt although I have not sold any materials to them.
24 September 2025
Forfeited advance money of Rs. 3 lakhs must be shown as "Income from Other Sources" in the income tax return for the year the forfeiture took place, as per section 56(2)(ix) of the Income Tax Act.
Any sum of money received as an advance for the transfer of a "capital asset" and subsequently forfeited due to the non-completion of the transaction is now taxable under the head "Income from Other Sources." This means the amount is taxed in the financial year in which it is forfeited, regardless of when the advance was initially received.
Any sum of money received as an advance for the transfer of a "capital asset" and subsequently forfeited due to the non-completion of the transaction is now taxable under the head "Income from Other Sources." This means the amount is taxed in the financial year in which it is forfeited, regardless of when the advance was initially received.
24 September 2025
Is GST payable on the forfeited amount?
Forfeiture as a "Supply of Service": According to Schedule II of the CGST Act, 2017, the act of "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act" is considered a "supply of service."
In recent rulings and clarifications, it has been argued that when you forfeit an advance payment due to the buyer's non-performance, you are essentially "tolerating" their non-performance as per the terms of the agreement. This act of toleration is treated as a supply of service, and GST is applicable on the forfeited amount.
This is particularly relevant if your agreement with the party had a clause stating that the advance would be forfeited in case of non-payment of the balance amount. The forfeited amount then becomes the "consideration" for the service of tolerating the breach of contract.
GST is likely payable on the forfeited amount. While you were initially exempt from paying GST on the advance for goods, the forfeiture is treated as a separate taxable event—a "supply of service"—on which GST is applicable.
Forfeiture as a "Supply of Service": According to Schedule II of the CGST Act, 2017, the act of "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act" is considered a "supply of service."
In recent rulings and clarifications, it has been argued that when you forfeit an advance payment due to the buyer's non-performance, you are essentially "tolerating" their non-performance as per the terms of the agreement. This act of toleration is treated as a supply of service, and GST is applicable on the forfeited amount.
This is particularly relevant if your agreement with the party had a clause stating that the advance would be forfeited in case of non-payment of the balance amount. The forfeited amount then becomes the "consideration" for the service of tolerating the breach of contract.
GST is likely payable on the forfeited amount. While you were initially exempt from paying GST on the advance for goods, the forfeiture is treated as a separate taxable event—a "supply of service"—on which GST is applicable.
24 September 2025
Good Luck...
12 October 2025
Money was received for supply of goods and not for service.please clarify and some goods were also supplied.please clarify?
12 October 2025
The excess amount is called forfeited amount if not returned back, and GST is applicable over it.
12 October 2025
How much gst is applicable on it?
13 October 2025
If a contract includes a clause for forfeiture of advance upon cancellation or breach, and the advance is kept as compensation for tolerating non-performance, GST at 18% is applicable on the amount forfeited at the time of forfeiture. (Schedule II, Entry 5(e) of the CGST Act, 2017)
30 October 2025
If we receive amount as loan from party and forfeit the loan amount Then will be required to pay gst on loan amount? Please clarify?
30 October 2025
If we receive amount as loan from party and forfeit the loan amount Then will be required to pay gst on loan amount? Please clarify?
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Applicability of TDS on CFS, CHA fees, and shipping line charges
- Notice from IT DEPTT IF FD AMOUNT EXCEEDS 10 LACS
- Unable to generate and save json file for updated return
- GST payable under RCM
- Applicablity on tds
- LTCG offset against property buy
- Tax audit & Switching from Presumptive taxation
- Section 194I not showing in TDS RPU for Compnay Assessee for TDS on rent
- PRODUCT AND SERVICE CATEGORY CODE
- Tax Part CGST SGST OR IGST
- Advance money given for supply of goods
- Import purchase entry
- Rule 54(1A) for Distributing ITC
- Received advance money for supply of goods but forfeited by us since full money not received
- EXCESS CREDIT REALTED GST REVERSAL
- Export invoice not reported
- CA Articleship Extension Matter
- GST OFFICER WRONG NOTICE
- "Please ensure that the Total of the Deductions u/s 54F match the same in Table D in Sch CG"
- Composition Dealer GST Annual Return Filing process
Trending Online Classes
-
LIVE Course on GSTR-9 & GSTR-9C (Technical | Practical | Concept - Based)
Sachin Jain03 November 2025
CAclubindia
