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GST on Advance Payment if Client defaults

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AJM_India

Director

75 Points Posted on 15 April 2024

We are civil contractors.

We often start contract work with 20-30% advance payment. We do not raise any invoice against advance payment.

At the end of the contract period (30-60 days), we raise a Performa Invoice for full amount to the client and the client releases balance payment to us.

In some cases, the clients default on payment and usurp the pending payment.
Are we liable to raise an invoice for advance payment received and incur additional liability (loss) of GST amount as well. Our CA insists that we have to raise the invoice on advance payment and pay GST Liability.

Ideally we would like to forfeit the advance payment due to non adherence of Contract / Payment Terms.
Is there any way we can justify non payment of GST on advance payment since we have already incurred 70% loss on the contract job.

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Quick Summary

Civil contractors often receive advance payments but don't invoice them until contract completion. The core issue is whether GST is payable on these advances, especially if the client subsequently defaults on the remaining payment. While contractors prefer to forfeit the advance in such cases, their CA advises that an invoice must be raised and GST paid on the advance received, as per GST regulations for advance payments.