Write off of customer advances

[ROHIT GOEL]

Dear Sir,

One of our client is acting as money exchanger and assisting customers in remitting amounts to foreign universities for education. As per company policy, the amount is collected in advance from customer in INR and thereafter Remittance made in forex. In case of cancellation of transaction, received amount is returned to customers and in case said amount remains unclaimed for more than 365 days, amount is written off as income to P&L.

1. During the year, the company has written off ₹ 100 to P&L as per above policy. My question is whether GST would be liable on grossed up basis on this amount?

2. Second, since company does not charge commission separately, GST on remittance in its case is payable on slab basis as per amount remitted by it. In case of cancellation however would tax rate be 18% as entire amount will be considered as income?

3. If in case, customer comes to ask for refund in future, can company in that case issue credit note and reverse its output liability? Plus, as per my understanding, such credit note cannot be issued after next September after end of FY. Then would that lead to tax loss?

It is important to mention that since in this case, company only receives 10-20% advance and it is not clear at that time what would be final remittance amount, company is initially not paying any GST on advance from customer. GST is only paid as per fixed slabs once remittance amount is finalised i.e. at time of service.

Your views on this somewhat peculiar matter would be appreciated.

AI Summary

GST Clarification: Write-offs Not Liable, Taxability of Canceled Transactions Under Review, 18% GST on Finalized Remittances Only. A client acting as a money exchanger collects advance payments in INR for foreign remittances to universities. If a transaction is canceled, the advance is refunded; otherwise, unclaimed amounts after 365 days are written off as income. The client seeks clarification on GST liability on these write-offs, whether GST should be applied at 18% on canceled transactions, and if a credit note can be issued for refunds after the fiscal year. The response indicates that the write-off is not liable for GST, but the transaction's taxability needs further examination. GST is only paid on finalized remittance amounts.