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Write off of customer advances, Goods and Services Tax - GST

Issue Id: - 117221
Dated: 15-5-2021
By:- ROHIT GOEL
Write off of customer advances

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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.

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1 Dated: 16-5-2021
By:- Shilpi Jain

The write off of the advances received would not be liable to GST. however the taxability of the amount received or the commission will have to be examined to ascertain taxability. Prima face it looks like a taxable transaction


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