The current indirect taxation system (consisting of multiple taxes) is about to undergo a drastic change, with India’s new Goods and Services Tax (GST, a single taxation system for the entire country) being rolled out 1 July 2017.
Many provisions are changing, including the concept of point of taxation – the point in time when goods and/or services are deemed to have been provided and when the tax liability can be determined.
Under the current tax regime, the point of taxation differs for each tax type:
- Manufacturing of goods: The liability to pay tax arises at the time goods are removed from the factory/excise unit
- Services: Date payment is received or date invoice is issued, whichever is earlier
- Sale of goods: The liability to pay tax arises on the sale of goods with both interstate VAT and intrastate GST
Under GST, the time of supply varies based on the type of transaction. The various provisions related to each are outlined below.
| S. No. | Transaction type | Treatment under GST |
| 1. | Goods | Time of supply shall be the earlier of*:
· The date of issue of an invoice by the supplier or the last date on which he is required to issue an invoice · The date of receipt of payment by the supplier with regard to the supply |
| 2. | Services | Time of supply shall be the earlier of:
· The date of issue of an invoice by the supplier or the last date on which he is required to issue an invoice · The date of receipt of payment |
| 3. | Supply with vouchers | Time of supply shall be the earlier of:
· The date of issue of a voucher, if the supply can be identified at that point · The date of redemption of a voucher, in all other cases |
| 4. | Reverse charge | Under reverse charge, the liability to pay tax is on the recipient of goods/services and not the supplier. The time of supply in that case shall be the earlier of:
· The date of receipt of goods · The date on which the payment is made · The date immediately following 30 days from the date the supplier issues the invoice |
| 5. | Residue method | If the time of supply of goods cannot be determined using any of the above methods, then the residue method applies. This means that the time of supply of goods would be:
· The date on which the periodic GST return has to be filed · Or, the date of payment of CGST/SGST, if the return needs not be filed |
* Provided that when the supplier of taxable goods receives an amount up to 1,000 rupees in excess of the amount indicated on the tax invoice, the time of supply to the extent of such excess, shall at the option of the said supplier, be the date of issue of invoice.
For the above, the date of receipt of payment shall be the earlier of:
- The date on which the payment is entered in the books of account
- The date on which the payment is credited to the bank account
Let’s apply the above provisions to a few examples to better understand how time of supply can vary:
Example 1
Since the date of entry into the books is earlier than the date of credit to the bank account, the time of supply is 30 September.
| Date of invoice | Receipt of payment entered in books of account | Receipt of payment credited to bank account | Time of supply of goods |
| 11 October, 2017 | 30 September, 2017 | 3 October, 2017 | 30 September,2017 |
Example 2
| Date of invoice | Receipt of payment | Time of supply of goods |
| 5 October, 2017 | 30 August, 2017 | 30 August, 2017 |
Example 3: Reverse charge
| Date of invoice | Receipt of goods | Date of payment | Time of supply of goods |
| 28 August, 2017 | 5 September, 2017 | 26 August, 2017 | 26 August, 2017 |
| 24 August, 2017 | 1 July, 2017 | 28 August, 2017 | 31 July, 2017 |
These provisions for determining the time of supply will be entirely new for taxpayers, especially for VAT and excise payers. Small businesses, too, will face many hurdles in adapting to the new law – GST guidelines are far more onerous than what they face today.
Avalara is an application service provider (ASP) and partner of licensed GST Suvidha Providers (GSPs). To understand how Avalara India GST can help you with GST compliance, contact us through https://www.avalara.com/in/products/gst-returns-filing.
