Understanding the Time of Service Supply under GST Regulations
This article clarifies the concept of time of supply for services under India's Goods and Services Tax (GST) regime, which dictates when tax liability arises. It details how the time of supply is determined based on invoice dates, payment receipts, or service provision, outlining specific rules for normal charges and the reverse charge mechanism. The guide also addresses scenarios involving foreign suppliers and vouchers, emphasizing the government's aim to collect taxes at the earliest point.
The concept of point of taxation identifies the precise moment when a supply of goods or services is considered to have occurred. This timing is critical for establishing the applicable tax rate, the value of the supply, and the deadlines for tax payments. Under the Goods and Services Tax (GST) framework in India, the obligation to pay Central GST (CGST) and State GST (SGST) arises at the determined time of supply for both goods and services. Specific regulations govern the time of supply for goods, which differs from those for services. For details on the time of supply for goods, refer to the relevant guide here. For services, the CGST/SGST liability is triggered according to distinct GST provisions. Watching this video will give you a quick overview of the time of supply for services under GST.
How to Ascertain the Time of Supply
The time of service supply is determined by the earliest of these dates:
(a) If an invoice is issued within the stipulated period*, the earlier of the invoice date or the payment receipt date. (b) If an invoice is NOT issued within the stipulated period*, the earlier of the date of service provision or the payment receipt date. (c) If neither (a) nor (b) applies, the date on which the service recipient records the service in their financial records.
*The prescribed period for invoice issuance is generally before service provision, or within 30 days after, as per invoicing regulations (excluding insurance, banking, or financial institutions).
If a service provider receives up to INR 1000 beyond the invoice amount, they can choose the invoice date as the time of supply for this additional sum. For conditions (a) and (b), the supply is deemed to occur to the extent covered by the invoice or payment. The date of payment receipt is the earlier of when the payment is recorded in the books or when it is credited to the bank account.
Example:
- Invoice date: 15th May 2018
- Payment receipt date: 10th July 2018
- Supplier recorded payment: 11th July 2018
The time of supply in this case is 15th May 2018.
Time of Supply Under the Reverse Charge Mechanism
Under the reverse charge mechanism (RCM), the recipient, rather than the supplier, is responsible for paying the tax. For RCM, the time of supply is the earliest of:
(a) The date of payment. (b) The date immediately following 60 days from the supplier's invoice date (for goods, it is 30 days).
If the time of supply cannot be determined using (a) or (b), it defaults to the date the service receiver records the transaction in their books of account. For clause (a), the payment date is the earlier of when the recipient records the payment in their books or when the payment is debited from their bank account.
Foreign Supplier Scenarios
For 'associated enterprises' where the service supplier is located outside India, the time of supply is the earlier of:
(a) The date of entry in the receiver's books of account. (b) The date of payment.
Example for reverse charge:
- Payment date: 15th July 2018
- Invoice date: 1st July 2018
- Date of entry in books of receiver: 18th July 2018
The time of service supply is 15th July 2018. If for some reason time of supply could not be determined by the previous conditions, then it would be 18th July 2018, which is the date of entry in the books.
Time of Supply for Vouchers
For the supply of vouchers, the time of supply is determined as:
(a) The voucher's issue date, if the nature of the supply can be identified at that time. (b) The voucher's redemption date, for all other instances.
Cases Where Time of Supply Cannot Be Ascertained
If the time of supply cannot be ascertained using the aforementioned provisions, then it will be:
- The due date for filing a periodic tax return.
- The date when CGST/SGST is paid, in any other scenario.
The GST framework aims to ensure tax collection occurs at the earliest possible point, as indicated by various events such as invoice issuance, payment, or service completion. This approach represents a significant change for businesses previously accustomed to VAT and Central Excise regimes. Consequently, businesses may encounter challenges in reconciling revenue figures between their financial records and GST compliance requirements due to the multiple parameters involved in determining the time of supply.