Mahesh Jaising

Time of Supply: Relevant provisions for the IT / ITES segment

Blog Post created by Mahesh Jaising on Jun 2, 2017

Once the first question of whether GST is applicable on a supply is answered, the next question that arises is when the tax is required to be paid.  This question can be answered by applying the provisions of time of supply.  The provisions pertaining to time of supply of goods is different from the provisions pertaining to the time of supply of services as different parameters are relevant for the different types of supply. 

 

Delay in raising of the invoice would result in delay in payment of tax which would in turn result in the levy of interest, so establishing the time of supply accurately is important.

How is the time of supply of goods / services determined?

The time of supply of goods / services will be the earlier of:

a) The date of issue of invoice by the supplier, if the invoice is issued within the specified period; or

b) The date of receipt of payment.

In the event that the invoice is not issued within the specified period, the time of supply of goods / services will be the earlier of:

a) The date of provision of service; or

b) The date of receipt of payment.

If the above are not applicable, the date where the recipient accounts for the receipt of services in his books of accounts would be treated as the time of supply.  This provision would be applicable in very few cases.

What is treated as the date of receipt of payment?

The date of receipt of payment shall be the earlier of the following:

a) Entry in the books of account of the supplier; or

b) Credit to the suppliers bank account

What is the specified period within which an invoice should be raised?

In case of a taxable supply of services, the invoice shall be issued within a period of thirty days from the date of supply of service.

In the case of a taxable supply of goods, the invoice shall be issued before or at the time of:

a) Removal of goods for supply to the recipient; where the supply involves movement of goods

b) Delivery of goods or making available thereof to the recipient; in all other cases

Is the specified period within which an invoice has to be raised different for a continuous supply?

In case of continuous supply of services (ie a supply of services which is provided continuously on a recurrent basis under a contract for a period exceeding three months with periodic payment obligations), the invoice would have to be raised as follows:

a) Where the due date of payment is ascertainable from the contract, the invoice would have to be issued on or before the due date of payment;

b) Where the due date is not ascertainable from the contract, the invoice would have to be raised before or at the time of receipt of payment;

c) Where the payment is linked to the completion of an event, the invoice would have to be raised on or before the date of completion of the event.

For a continuous supply of goods where successive statements of accounts or successive payments are involved, the invoice shall be issued before or at the time each statement is issued / payment is received.

What is the time of supply where tax is required to be paid on reverse charge basis for goods?

The time of supply in such a case would be the earliest of the following dates:

a) Date of receipt of goods;

b) Earlier of ( i) date of payment as entered in the books of account of the recipient or (ii) the date when the payment is debited in his bank account;

c) Date immediately following 30 days from the date of issue of the invoice or any other document, in lieu thereof by the supplier

In the event it is not possible to determine the time of supply as given above, the time of supply shall be the date of entry in the books of account of the recipient of the supply.

What is the time of supply where tax is required to be paid on reverse charge basis for services?

The time of supply in such a case would be the earliest of the following dates:

a) Earlier of ( i) date of payment as entered in the books of account of the recipient or (ii) the date when the payment is debited in his bank account;

b) Date immediately following 60 days from the date of issue of the invoice or any other document, in lieu thereof by the supplier

In the event it is not possible to determine the time of supply as given above, the time of supply shall be the date of entry in the books of account of the recipient of the supply.

In the case of supply by associated enterprises where the supplier of services is located outside India, the time of supply shall be the earlier of the two:

a) The date of entry in the books of account of the recipient of supply;

b) The date of payment

 

Key takeaways

 

The Time of Supply rules for IT/ ITES sector is similar to the current Point of Taxation Rules under service tax.  Hence, key parameters continue to be to determine the “date of supply of service”, along with the date of invoice and payment.

 

Do watch this space for our next article in the GST series – Input tax credit: Building efficiencies into the supply chain

 

Disclaimer

 

The above blog is based on inputs from our GST knowledge partner, BMR Advisors. The blog is with the intent to provide general guidance and does not render any definitive opinion. Prior professional advice is recommended before implementation of any aspects covered above.

 

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