If a client pays you an advance for services, GST is generally due in the month you receive the money. You don't wait for the invoice. Issue a receipt voucher for the advance and pay GST on it in that month's return. When you raise the tax invoice later, adjust the advance in GSTR-1 (Table 11) so the same tax isn't paid twice. For goods, the rules are different. Most suppliers of goods currently don't pay GST on advances.
Agencies, studios, consultants and IT firms that take 30–50% upfront run into this all the time. Most of them get one of these steps wrong. Here's the whole flow, with a worked example.
Why the advance is taxed before the work is done#
Under GST, tax is due at the time of supply. For services, that's usually the earlier of two dates: when you issue the invoice, or when you receive payment. An advance comes before the invoice, so the advance becomes the trigger.
So if a Bengaluru design agency gets ₹1,00,000 upfront on 5 July, the GST in that ₹1,00,000 goes into the July return. It doesn't matter that the website will only be delivered in September.
Two practical points:
- Treat the advance as GST-inclusive unless your agreement says something else. The tax inside an 18% advance is advance × 18/118.
- If the advance and the invoice fall in the same month, you can usually skip the separate advance entry. You simply invoice and pay tax on the invoice in that month.
What a GST receipt voucher must show#
When you get an advance, you issue a receipt voucher, not a tax invoice. You'll also see it called an "advance receipt". It shows the client that you've received the money and charged tax on it.
A receipt voucher should include:
- Your name, address and GSTIN
- A serial number in its own series (for example RV/25-26/001), unique for the financial year
- Date of issue
- Client's name, address and GSTIN (if they're registered)
- Description of the service (for example "Brand identity project – 40% advance")
- Amount of advance received
- GST rate and tax amount, split into CGST + SGST or shown as IGST
- Place of supply (state name and code) for inter-state supplies
- Whether tax is payable on reverse charge
- Signature or digital signature
If you don't know the rate yet, the rules say to charge 18%. If you don't know yet whether the supply is inter-state or intra-state, treat it as inter-state and charge IGST. You fix any difference when the final invoice goes out.
Keep receipt vouchers in their own number series, separate from your tax invoices. Your CA will thank you.
Worked example: a ₹3,00,000 project billed in milestones#
Kite & Co. is a branding agency in Pune. Its client is a D2C snack brand, also in Maharashtra, so the tax is CGST + SGST at 9% each. The quote is ₹3,00,000 + 18% GST = ₹3,54,000, billed like this:
- 40% advance on signing (July)
- Milestone 1, logo and identity delivered: ₹1,50,000 + GST (August)
- Milestone 2, packaging and brand book delivered: ₹1,50,000 + GST (September)
July: advance received. The client pays ₹1,41,600. Kite issues receipt voucher RV/001:
- Taxable value: ₹1,41,600 × 100/118 = ₹1,20,000
- GST: ₹21,600 (CGST ₹10,800 + SGST ₹10,800)
Kite reports this in July's GSTR-1, Table 11A (advances received), and pays ₹21,600 through July's GSTR-3B.
August: first milestone invoice. Kite raises invoice INV/045 for the full milestone value:
- Taxable value ₹1,50,000, GST ₹27,000, total ₹1,77,000
- Line on the invoice: "Less: advance received vide RV/001 dated 10 July – ₹1,41,600"
- Balance payable by client: ₹35,400
The invoice goes into Table 4A at full value, as usual. The advance is then knocked off in Table 11B (adjustment of advances) for ₹1,20,000 taxable and ₹21,600 tax. The net new GST for August is ₹27,000 − ₹21,600 = ₹5,400.
September: second milestone. This is a normal invoice for ₹1,50,000 + ₹27,000 GST. There's no advance to adjust.
| Month | Document | GSTR-1 entry | GST paid in 3B |
|---|---|---|---|
| July | Receipt voucher ₹1,41,600 | Table 11A: ₹1,20,000 / ₹21,600 | ₹21,600 |
| August | Invoice ₹1,77,000 | Table 4A + Table 11B adjustment | ₹5,400 |
| September | Invoice ₹1,77,000 | Table 4A | ₹27,000 |
| Total | ₹54,000 |
₹54,000 is exactly 18% of ₹3,00,000. The tax was paid once, just earlier than usual. If the Table 11B adjustment is skipped in August, Kite pays ₹21,600 twice. That's the most common mistake we see.
One more tip: if the advance is bigger than the first milestone, adjust only up to that milestone's value. Carry the rest forward to the next invoice.
When the project is cancelled: refund vouchers#
Sometimes the client pulls out. Say the snack brand cancels in August, before any invoice was raised, and Kite returns the ₹1,41,600.
Kite issues a refund voucher. It should show:
- Your details and GSTIN, plus a serial number in its own series
- Date, and the client's details
- Number and date of the original receipt voucher (RV/001)
- Amount refunded, GST rate and tax amount (CGST/SGST or IGST)
- Whether reverse charge applies, and a signature
The ₹21,600 already paid on the advance can then be adjusted against Kite's liability in the period of the refund. Agree with your CA on exactly how the refund shows up in GSTR-1, through Table 11 or an amendment of the earlier advance entry, and keep the bank proof of the refund.
Partial cancellation is common with agencies. If the logo was done but the rest is cancelled, invoice the work actually delivered and adjust the advance against it. Then issue a refund voucher only for the part you're returning.
Don't use a credit note here. A credit note reduces a tax invoice. A refund voucher reverses a receipt voucher. Because no invoice exists yet, the refund voucher is the right document.
Goods vs services: why manufacturers and traders see this differently#
| Services | Goods | |
|---|---|---|
| GST on advance? | Yes, in the month received | Generally no, for most regular taxpayers (exempted by notification) |
| Receipt voucher | Issue it | Still advisable as a record of the advance |
| Table 11 in GSTR-1 | Report and adjust | Usually not needed |
A Ludhiana machine-parts maker taking 30% upfront on an order usually pays GST only when the invoice is raised at dispatch. Composition dealers and a few special cases follow their own rules, so confirm with your CA. And if a contract mixes goods and services (supply plus installation, for example), work out which category it falls in first. That decides how the advance is taxed.
Keeping advances tied to the final invoice#
On paper this is simple. In practice it breaks when the advance sits in a bank statement, the receipt voucher sits in someone's email, and the final invoice is raised three months later by a different person who doesn't know about it.
A few habits help:
- Record every advance against the project or order it belongs to, not just against the client.
- Put the receipt voucher number on the final invoice.
- Before filing GSTR-1 each month, list every advance that's still unadjusted and check whether its invoice went out that month.
- Ask your CA to look at Table 11A and 11B together every quarter.
In Clyrix, you record payments against a project. That means the advance sits right next to the quote and the milestone invoices for that job, and whoever raises the final invoice can see what has already been received. Invoices show CGST, SGST and IGST separately, and the GSTR-1 export gives your CA a clean starting point. Have your CA check the advance entries before filing. You can see how it works on the GST features page or under invoicing.
The short version: receipt voucher when money comes in, GST that month (for services), adjust in Table 11B when you invoice, refund voucher if the work never happens.
