Advance payment to foreign suppliers

Hey Dipjyoti,

Regarding GST on advance payments to non-resident suppliers under Reverse Charge Mechanism (RCM), here’s the usual treatment:

Is GST payable under RCM on advance paid to foreign suppliers of goods?

Short answer:
Generally, no GST is payable under RCM on advance payments made to non-resident suppliers for goods.

Reasoning:

1. Supply of goods from outside India is treated as import of goods under GST.

2. For imports, GST is payable at the time of customs clearance, not on advance payments.

3. Section 9(3) of CGST Act states that the recipient is liable to pay GST on import of goods under RCM, but it’s linked with the actual import event and customs clearance.

4. Advance payment itself is not considered a taxable event triggering GST under RCM for imports of goods.

Additional points:

• However, if the advance is for services from a non-resident, then GST under RCM is payable on the advance, because supply of services from outside India is a taxable event when payment is made or invoice is issued (whichever is earlier).

• In case of goods, the tax liability arises only on actual import and is discharged at the port.

Summary:

• For advance payment to foreign suppliers of goods: No GST payable under RCM at advance stage. GST is paid at import clearance.

• For services: GST under RCM is payable on advance.