What is Time of Supply for Services on Forward Charge

In our previous blog post What is Time of Supply for Goods on Forward Charge we discussed time of supply for goods. In this blog, we will discuss the Time of Supply on Forward Charge for Services.
 

Under Current Regime
Under the current indirect tax regime, on rendering taxable services, service tax is applicable. The point in time when service tax is to be paid to the central government is determined in accordance with the point of taxation (POT).
According to POT, the liability to pay service tax on forward charge will be determined as shown below:

Earliest of the following

Date of issue of invoice

If the invoice is issued within 30 days from the date of completion of the service

Date of completion of service

If the invoice is not issued within 30 days from the date of completion of the service

Date of receipt of payment

Earliest of Date of payment entered in books of accounts or Date on which payment is credited to the bank account

Let us understand with examples.

Date of Completion of Service

Date of Invoice

Date of Receipt of Payment

POT

Explanation

15th October, 2016

20th October, 2016

10th November, 2016

20th October, 2016

The invoice is issued within 30 days of completion of service, and date of invoice is earlier than the date of receipt of payment.

1st December, 2016

5th December, 2016

25th November, 2016

25th November, 2016

The invoice is issued within 30 days of completion of service, and date of receipt of payment is earlier than the date of invoice.

1st November, 2016

5th December, 2016

10th December, 2016

1st November, 2016

The invoice is not issued within 30 days of completion of service. Hence, earliest of; completion of service or date of receipt of payment will be POT i.e., in this case, 1st November, 2016 which is the date of completion of service.

Under GST
In GST, the determination of the point in time when tax has to be paid is explained under ‘Time of Supply’ provisions. The determination of time of supply for services is similar to determining the time of supply for goods. Though services are intangible in nature unlike goods, in order to fill up the gap between goods and services, and to ensure simpler principles, the provisions to determine time of supply for goods and services are similar.
Let us understand Time of Supply for Services under GST on Forward Charge basis
The liability of GST (CGST and SGST or IGST, as applicable) will arise as shown below:

Earliest of the following

Date of invoice

The date on which the supplier issues the invoice.

Due date to issue invoice

The last date on which the supplier is required to issue the invoice is 30 days from the date of supply of services. In case of a banking company, the invoice has to be issued within 45 days from the date of supply of services.

Receipt of payment
 

The date on which payment is received. The earliest of the date on which the payment is accounted in the books of accounts or the date on which the payment is credited to his bank account.

Let us understand this with examples.

Date of Invoice

Date of Receipt of Payment

Time of Supply

Explanation

20th October, 2017

10th November, 2017

20th October, 2017

In this case, the date of invoice is earlier than the date of receipt of payment. Hence, The time of supply will be 20th October, 2017.

5th December, 2017

25th November, 2017

25th November, 2017

In this case, the date of receipt of payment (advance receipt) is earlier than the date of invoice. Hence, the time of supply will be 25th November, 2017

5th December, 2017

Date of Entry in Books: 20th November, 2017
 
Date of Payment credited to Bank: 25th November, 2017

20th November, 2017

The time of supply will be the earliest of date of invoice or receipt of payment. The date of receipt of payment will be the earliest of:
 

• The date on which the payment is entered in the books of accounts or
• The date on which the payment is credited to the bank account.

In this case, the date on which the receipt of payment is entered in the books of account is earlier than the date on which payment is credited to the bank account.

5th December, 2017

Date of Entry in Books: 15th November, 2017
 
Date of Payment credited to Bank: 10th November, 2017

10th November, 2017

The time of supply will be the earliest of date of invoice or receipt of payment. The date of receipt of payment will be the earliest of:
 

• The date on which the payment is entered in the books of accounts or
• The date on which the payment is credited to the bank account.

In this case, the date on which payment is credited to the bank account is earlier than the date on which payment is entered in the books of account.

Time of supply in cases where invoice is not available

Date of Completion of Service

Receipt of Payment

Time of Supply of Services

Explanation

1st November, 2017

5th December, 2017

30th November, 2017

The time of supply will be the earliest of last day to issue invoice and receipt of payment. The last date to issue the invoice will be 30 days from the date of supply of services. Hence, the time of supply will be 30th November, 2017. This is because the 30 days date of completion of services is earlier than the date of receipt of payment.

Next-in-line
Time of supply for goods on Reverse Charge Mechanism
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