When you receive an advance, issue a receipt voucher under section 31(3)(d) of the CGST Act. For services, GST is payable on the advance because the time of supply is the earlier of invoice or payment. For goods, Notification 66/2017-Central Tax relieves suppliers (other than composition taxpayers) from paying tax on advances; tax is paid when the invoice is issued.
Taking an advance is one of the best ways to protect your cash flow, especially on custom or large orders. But under GST, an advance is not just money in the bank: depending on whether you supply goods or services, it may trigger tax immediately, and it always needs proper documentation.
This guide explains when GST is payable on advances, how to issue a receipt voucher, how to adjust the advance in the final invoice, and what to do if the order is cancelled.
Why does an advance matter for GST?
GST is due at the time of supply, which the CGST Act defines separately for goods (section 12) and services (section 13). For both, receipt of payment is one of the events that can fix the time of supply. Under section 12, for goods, it is the earlier of the invoice date (or the last date the invoice should have been issued) and the date the supplier receives payment. Services follow a similar earlier-of rule under section 13.
So, without any relief, receiving an advance would make GST payable on it at once. The law then provides relief for goods, but not for services. For a full explanation of time of supply, see time of supply under GST.
Goods vs services: is GST payable on the advance?
| Advance for goods | Advance for services | |
|---|---|---|
| GST payable when advance received? | No (Notification 66/2017-Central Tax), except composition taxpayers | Yes |
| Document on receiving advance | Receipt voucher | Receipt voucher |
| When GST is paid | When tax invoice is issued | In the return for the month the advance is received |
| Final invoice | Full value, tax charged in full | Full value, tax on advance already paid is adjusted |
Notification 66/2017-Central Tax, dated 15 November 2017, exempts suppliers of goods from paying tax on advances received. The GST Council's flyer on advances summarises the effect: suppliers of goods, other than composition dealers, pay tax at the time of issue of invoice.
What must a receipt voucher contain?
Section 31(3)(d) requires a registered person to issue a receipt voucher on receiving an advance. Rule 50 of the CGST Rules lists the particulars, which include:
- Name, address and GSTIN of the supplier.
- A consecutive serial number, unique for the financial year.
- Date of issue.
- Name, address and GSTIN or UIN of the recipient, if registered.
- Description of goods or services.
- Amount of advance taken.
- Rate of tax (central, state, integrated, union territory or cess).
- Amount of tax charged.
- Place of supply, with state name and code, for inter-state supplies.
- Whether tax is payable on reverse charge.
- Signature or digital signature of the supplier or authorised representative.
Two special rules in Rule 50 matter in practice:
- Rate not determinable: tax is paid at 18%.
- Nature of supply not determinable: it is treated as an inter-state supply (IGST).
Rule 50 also requires a separate account of advances received, paid and adjustments made.
Worked example: an advance for services
A Bengaluru interior design studio agrees a design fee of ₹2,00,000 plus 18% GST with a client in Karnataka. The client pays an advance of ₹59,000 on 10 October 2026, and the work is completed and invoiced on 25 November 2026.
Step 1: Split the advance. The advance is treated as GST-inclusive:
- Taxable value = ₹59,000 × 100 ÷ 118 = ₹50,000
- GST = ₹9,000 (CGST ₹4,500 + SGST ₹4,500)
Step 2: Issue a receipt voucher on 10 October showing ₹50,000 value and ₹9,000 tax. Pay the ₹9,000 in the October return.
Step 3: Issue the tax invoice on 25 November for the full supply:
| Item | Amount |
|---|---|
| Design fee | ₹2,00,000 |
| CGST 9% | ₹18,000 |
| SGST 9% | ₹18,000 |
| Invoice total | ₹2,36,000 |
| Less: advance received (RV-2026-014) | ₹59,000 |
| Balance payable | ₹1,77,000 |
Step 4: Pay the balance tax. Total tax on the supply is ₹36,000. Tax of ₹9,000 was already paid in October, so ₹27,000 is payable in November. In GSTR-1, the advance and its later adjustment are reported in the advances section so the tax is not paid twice.
Check: ₹27,000 + ₹9,000 = ₹36,000, and ₹1,77,000 + ₹59,000 = ₹2,36,000.
Worked example: an advance for goods
A Rajkot pump manufacturer receives a ₹1,00,000 advance on 5 October 2026 for pumps worth ₹3,00,000 plus 18% GST, delivered and invoiced on 2 November 2026. It is a regular (not composition) taxpayer.
- On 5 October: issue a receipt voucher for ₹1,00,000. No GST is paid on the advance because of Notification 66/2017-Central Tax.
- On 2 November: issue a tax invoice for ₹3,00,000 + ₹54,000 GST = ₹3,54,000; less advance ₹1,00,000; balance ₹2,54,000. Pay the full ₹54,000 GST in the November return.
The advance appears in your books as a liability (customer advance) until the invoice is raised.
How do you handle a cancelled order or refund?
If you receive an advance and no supply is made, and no tax invoice is issued, section 31(3)(e) allows you to issue a refund voucher when you return the advance. Rule 51 sets out its contents, which mirror the receipt voucher and refer to the original receipt voucher number.
- Confirm the cancellation in writing.
- Refund the money (bank transfer or UPI) and keep proof.
- Issue a refund voucher referencing the receipt voucher.
- For services, adjust the tax paid on the advance in your return as prescribed.
- Update your advance account so it shows zero for that customer.
If only part of the order is cancelled, issue the invoice for what was supplied and refund the excess advance with a refund voucher.
How should advances be shown in your books?
| Event | Entry |
|---|---|
| Advance received (services) | Dr Bank; Cr Customer advance (value); Cr Output GST |
| Advance received (goods) | Dr Bank; Cr Customer advance |
| Invoice issued | Dr Customer; Cr Sales; Cr Output GST (net of tax already paid on advance) |
| Adjust advance | Dr Customer advance; Cr Customer |
| Refund of advance | Dr Customer advance; Cr Bank |
Keeping advances separate from debtors stops a common error: showing a customer as having "credit balance" that is really an unadjusted advance, which then gets forgotten.
What about advances for inter-state or mixed supplies?
The same principles apply, but the tax type changes:
- Inter-state service advance: pay IGST on the advance (for example, ₹59,000 received becomes ₹50,000 value + ₹9,000 IGST at 18%).
- Place of supply unclear: Rule 50 says that where the nature of supply cannot be determined, it is treated as inter-state, so IGST applies. If the final invoice turns out to be intra-state, tax is adjusted accordingly when you invoice; take advice on the mechanics for your case.
- Rate unclear: pay 18% on the advance and adjust when the final rate is known. Under GST 2.0, introduced from 22 September 2025, most goods and services fall into 5% or 18%, with 40% for specified items, so check the final rate carefully. See GST rates and slabs.
Advances against multiple orders
When a customer pays a lump-sum advance for several future orders, issue one receipt voucher for the amount received, then adjust it against each invoice in turn. Keep a running balance on the customer's advance account so every invoice shows how much of the advance was used and how much remains.
| Invoice | Invoice total | Advance applied | Advance balance after |
|---|---|---|---|
| Opening advance | – | – | ₹1,18,000 |
| INV-301 | ₹47,200 | ₹47,200 | ₹70,800 |
| INV-318 | ₹59,000 | ₹59,000 | ₹11,800 |
| INV-332 | ₹35,400 | ₹11,800 | ₹0 (customer pays ₹23,600) |
Check: ₹47,200 + ₹59,000 + ₹11,800 = ₹1,18,000 applied in total.
Is an advance received by UPI or cash treated differently?
No. The payment method does not change the GST treatment. What matters is that the money was received before the supply. Record the UTR or receipt number on the receipt voucher so the advance can be traced. Large cash receipts may raise income-tax issues of their own, so prefer bank or UPI channels; see UPI payments for business.
Checklist: handling an advance from receipt to final invoice
Use this sequence each time money arrives before the supply:
- Identify the supply. Decide whether the advance is for goods or services, and whether the supply is intra-state or inter-state.
- Issue a receipt voucher with the amount, rate and tax, as required by section 31(3)(d).
- For services, pay tax on the advance in the return for the month in which the advance was received.
- Track the advance against the customer in a separate "advances received" ledger, not in sales.
- Raise the tax invoice when the supply is made, showing the full value and reducing the amount payable by the advance.
- Adjust the tax already paid so that only the balance tax is paid with the invoice.
- If the order is cancelled, issue a refund voucher and follow the reversal steps described above.
Keeping this order prevents the two most expensive errors: paying tax twice on the same service, and forgetting to pay tax on a service advance at all.
Common mistakes with advances under GST
- Not issuing a receipt voucher because "the invoice will come later".
- Paying GST on goods advances unnecessarily, blocking cash.
- Not paying GST on service advances, leading to interest later; see GST late fee and interest.
- Treating the advance as GST-exclusive, which overstates tax.
- Forgetting to adjust the advance in the final invoice, so the customer is billed twice.
- Leaving refunded advances open in your books without refund vouchers.
Billing Software by Betterwork can issue receipt vouchers, carry the advance into the final GST invoice and show the balance due, which keeps the customer statement and your returns consistent. For more on getting deposits in, see how to get paid faster.
Key takeaways
- Always issue a receipt voucher for an advance (section 31(3)(d), Rule 50).
- Services: GST is payable on the advance in the month it is received.
- Goods: suppliers other than composition taxpayers do not pay GST on advances (Notification 66/2017-Central Tax); tax is paid on invoice.
- If the rate is unclear, pay 18%; if the nature of supply is unclear, treat it as inter-state.
- Adjust the advance in the final invoice, and use a refund voucher if the order is cancelled.
This guide is general information, not tax advice. Rules last checked on 20 October 2026; confirm with your tax professional for your situation.