APPLICABILITY OF GST WHEN TDS AND RETENSION MONEY IS DEDUCTED FROM ADVANCE

[Mehul Pandya]

DEAR EXPERTS,

ONE CONTRACTOR IS ENTERED INTO CONSTRUCTION AGREEMENT. AS PER AGREEMENT CUSTOMER WILL GIVE 10,00,000/- (TEN LAKHS) AS AN ADVANCE. BUT HE WILL DEDUCT FOLLOWING ITEMS AS PER AGREEMENT.

a. 3% - 30,000/- FOR SECURITY DEPOSIT

b.10% - 100,000/- AS A RETENSION MONEY

c. 2% - 20,000/- FOR TDS

AFTER ABOVE DEDUCTION CUSTOMER CREDITED 8,50,000/- IN CONTRACTORS BANK ACCOUNT.

MY QUERY IS WHICH AMOUNT WILL BE CONSIDERED FOR DISCHARGING GST LIABILITY ON ADVANCE RECEIPT ?

[KASTURI SETHI]

.1. GST is to be paid on TDS. This is undisputed.

2. Retention money is a deferred payment. It is a type of advance to be used if required later on after the completion of work. It is taxable as advance.

3. Security deposit is a sort of advance. The purpose is to meet unforeseen circumstances. It is also taxable as advance.

Any advance is subject to final adjustment. Advance itself is not a consideration against supply. Advance becomes consideration only when supply is made. Go through proviso to Section 2 (31) of CGST Act.

"Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

AI Summary

GST on advances requires taxability of TDS, retention and security deposits treated as advance when applied. GST is chargeable on tax deducted at source; retention money and security deposits are treated as advances and taxable as advance receipts until the supplier applies such deposits or withheld amounts as consideration for the supply, in line with the proviso to the definition of advance under the CGST framework.