What is Advance Payment in GST?

Advance payment means money received before supplying goods or services. Under GST, tax liability may arise at the time of receiving advance, not just at the time of invoice.

Rules for GST on Advance

1. For Goods

• ❌ GST is NOT applicable on advance received for goods.
• ✔ GST is charged only when invoice is issued or supply happens.
• This rule was changed after 2017.

2. For Services

• ✔ GST is applicable on advance received for services.
• ✔ Tax must be paid immediately when advance is received.

Scenario (Fake Example)

Step 1: Advance Received (1 March)

GST is applicable because this is a service.

Journal Entry (Advance Received)

What are Capital Goods?

Capital goods are big assets used in business.

• Generator
• Machine
• Computer
• Furniture

Main Rule (Very Important)

If:

• Used for business purpose
• Invoice is valid
• Goods are received

Example

Conditions for ITC

• ✔ Used in business
• ✔ Supplier filed GST return
• ✔ Proper invoice available
• ✔ Payment made within 180 days

When ITC is Not Allowed (Blocked Credit)

• ❌ Motor car (in most cases)
• ❌ Building construction
• ❌ Personal use
• ❌ Goods lost or destroyed

Special Rule – Rule 43

This rule applies only when capital goods are used partly for:

• ✔ Business + Personal
• ✔ Taxable + Exempt supplies

Simple Meaning

Depreciation Rule

Reversal Case

If the asset is later used for:

• Personal purpose
• Exempt supply

✔ Then ITC must be reversed proportionately.

Final Rule

One-Line Exam Answer

Mixed Use Case

If capital goods are used:

• ✔ Partly for business + partly personal
• ✔ OR partly for taxable + partly exempt work

Then you cannot take full ITC directly.

What to Do in Mixed Use?

• ✔ Spread ITC over 5 years (60 months)
• ✔ Do monthly adjustment

Example of Mixed Use

What Happens Every Month?

• ✔ Take ₹42 as ITC
• ❌ Reverse ₹18
• 👉 Continue this for 60 months

Simple Understanding

Important Point

One-Line Memory Rule

Quick Summary Table

What is RCM?

RCM (Reverse Charge Mechanism) means the buyer/receiver pays GST instead of the seller.

Main Rule (Confirmed 2026)

Normal Purchase from Unregistered Dealer

For a normal purchase from an unregistered dealer, RCM is generally not applicable in 2026.

After the 2018 amendment, Section 9(4) does not say that every purchase from an unregistered person attracts reverse charge.

It applies only when the Government specifically notifies:

• A class of registered persons, and
• Specified categories of goods or services received from an unregistered supplier

Practical Rule

RCM from Unregistered Dealer Applies Only in Notified Cases

• Certain supplies to a promoter under notified provisions
• Commercial rent from unregistered landlord to registered person

Old ₹5,000 Per Day Rule

The old idea that RCM applies if purchases from unregistered persons exceed ₹5,000 per day is not the current rule for normal purchases.

That old proviso linked to Section 9(4) has been omitted.

Simple Answer

• Normal purchase from unregistered dealer: No RCM
• Notified special cases only: RCM applies

One-Line Exam Answer

Very Simple Examples

• Buy stationery from unregistered shop → No RCM
• Pay commercial shop rent to unregistered landlord as a normal registered taxpayer → RCM applies
• Promoter receiving notified inputs/services from unregistered suppliers → RCM may apply

1. RCM on Services (Most Important – Sec 9(3))

2. RCM on Unregistered Supplier (Sec 9(4))

Applies only in specific notified cases, not as a general rule.

3. RCM on Goods (Limited – Not Common)

4. Import of Services

• If service is received from outside India, GST is paid by Indian receiver under RCM
• ITC is allowed if used for business purpose

5. E-Commerce Operator (Sec 9(5))

This is a special case. It is not exactly pure RCM, but the concept is similar.

Important Corrections

• GTA: 5% → RCM applies
• GTA: 12% / 18% forward charge → No RCM
• Scrap: RCM applies only in specific conditions, not in all scrap cases
• E-commerce: Covered under Sec 9(5), not pure RCM

Final Rule (Clear)

Easy Memory Trick

• 1. Advocate
• 2. GTA
• 3. Director
• 4. Rent from unregistered landlord
• 5. Import of services

One-Line Exam Answer

Caution

Some older GST FAQs still circulating online reflect the old position. For 2026 understanding, rely on the amended Section 9(4) and specific notifications.

1. GST Treatment on Freight, Packing, Loading/Unloading & Incidental Charges

As per Section 15 of the CGST Act, 2017, if freight, packing, loading/unloading, insurance, or other incidental charges are charged by the supplier in the same invoice along with goods, then these charges form part of the value of supply.

2. Composite Supply Meaning

If the principal supply is supply of goods, then extra charges like freight, packing, loading/unloading, and insurance are treated as part of that goods supply.

3. GST Rate Applicability

When freight, packing, and other incidental charges are shown on the same invoice as goods, the GST rate applicable to these charges will be the same as the rate applicable to the goods.

4. Goods Booked on F.O.R. Basis

F.O.R. (Free on Road/Rail) basis means the supplier remains responsible for delivering the goods to the buyer’s location, and the freight cost is included in the invoice.

5. Separate Third-Party Freight (GTA)

If the buyer directly pays a transporter (GTA) separately, or the transporter raises a separate bill, then GST on freight will be governed by transportation-specific rules.

• ✔ If GTA issues separate bill, GST applies under GTA rules
• ✔ 5% under RCM (most common)
• ✔ 12% under forward charge (if GTA opts and conditions are met)

6. GST on GTA (Goods Transport Agency)

6.1 5% GST under RCM (Reverse Charge Mechanism)

• GTA does not pay GST
• Recipient pays GST to Government
• Rate = 5% GST (2.5% CGST + 2.5% SGST)

Who Pays GST under 5% RCM?

RCM applies when GTA services are provided to specified persons such as:

• Factory registered under the Factories Act
• Registered person under GST
• Company / LLP
• Partnership firm
• Society

ITC under 5% RCM

• ❌ GTA cannot take ITC
• ✔ Recipient can take ITC if eligible

7. 12% GST under Forward Charge

• GTA itself charges GST in the invoice
• GTA pays GST to Government
• Rate = 12% GST (6% CGST + 6% SGST)

Condition

• GTA must opt for forward charge
• Option is taken at the beginning of the financial year

Who Pays GST?

• GTA collects GST from customer
• Then deposits it to Government

ITC under 12% Forward Charge

• ✔ GTA can claim ITC on expenses
• ✔ Recipient can also claim ITC

8. Key Difference – 5% RCM vs 12% Forward Charge

9. Quick Final Rule

10. One-Line Exam Answer