Time of Supply in GST: When the Tax Becomes Payable

The time of supply is the point at which a supply is treated as having happened, and therefore the tax period in which the tax on it becomes payable. For goods, the general test in section 12 of the CGST Act is the earlier of the invoice date and the date of receipt of payment — though a 2017 notification removed the payment limb for most suppliers, leaving the invoice date doing the work. For services, section 13 keeps both limbs, so an advance received for a service is taxable when it lands. That asymmetry between goods and services is the single most misunderstood part of the topic, and it is where most of the errors come from.

What the time of supply actually decides

Three questions have to be answered before a transaction can be taxed correctly, and they are independent of one another. Place of supply decides which tax applies — CGST and SGST on an intra-state supply, IGST on an inter-state one — and is governed by its own set of rules, which we cover in the guide to place of supply rules. Value of supply decides how much tax is due. Time of supply decides when.

That third question is the one businesses tend to treat as bookkeeping rather than law, and it is the one that generates avoidable cost. Nothing about the time of supply changes the amount of tax you eventually pay. What it changes is which GSTR-3B carries the liability. Put a supply one period later than it belongs and the tax is short-paid for that period; the deficiency does not disappear when you pay it the following month, because interest runs on the delay from the date it fell due. The interest and late fee mechanics are unforgiving in exactly the way a timing rule invites: the amount is right, the period is wrong, and the cost is real.

The same logic runs in the other direction too. Report a supply a period early and you have funded the government ahead of time, which nobody will refund you for. The rules are not there to be conservative about; they are there to be applied.

Section 12: time of supply of goods

Section 12(2) states the general rule for goods as the earlier of two dates:

• The date of issue of the invoice by the supplier, or the last date on which the supplier was required to issue the invoice under section 31 — whichever of those two comes first; and
• The date on which the supplier receives the payment.

Read that first limb carefully, because it contains its own anti-avoidance device. The test is not simply "the date on the invoice". It is the invoice date or the statutory deadline for issuing it, whichever is earlier. For a supply of goods involving movement, section 31 requires the invoice to be issued before or at the time of removal; in other cases, before or at the time of delivery or of making the goods available to the recipient. So if goods left your warehouse in March and you raised the invoice in April, the time of supply is still March. Delaying the paperwork does not delay the tax.

Why the payment limb almost never applies to goods

The second limb — receipt of payment — is where the theory and the practice part company. A notification issued in November 2017 relieved registered persons, other than those paying tax under the composition scheme, from paying tax on advances received against a supply of goods. The effect is that the payment limb of section 12(2) is switched off for most suppliers, and the time of supply of goods collapses to the invoice test alone.

This is a notification, not an amendment to the Act, which is why the statutory text still reads as though advances on goods are taxable. If you are reading section 12 cold, you will reach the wrong conclusion. Check the current position on the GST portal before relying on it, and note that composition taxpayers were outside the relief.

Section 13: time of supply of services

Section 13 uses the same earliest-of architecture but hinges on whether the invoice was issued on time. Section 31 gives a prescribed period, running from the date the service is supplied, within which the invoice must be issued — a different period applies to insurers, banks and other financial institutions — and the branch you land on depends on whether you met it.

• Invoice issued within the prescribed period. The time of supply is the earlier of the date of issue of the invoice and the date of receipt of payment.
• Invoice not issued within the prescribed period. The test shifts to the earlier of the date on which the service was actually provided and the date of receipt of payment. In other words, a late invoice takes you off the invoice date entirely and puts you on the performance date.
• Neither limb determinable. A residual rule fixes the time of supply as the date on which the recipient shows the receipt of the service in their books of account.

The practical reading is that punctual invoicing gives you a date you control, while late invoicing hands the decision to the facts. A consultancy that completes an engagement in September and invoices in November does not get a November time of supply; it gets September, and interest for the intervening periods.

"Date of receipt of payment" has its own definition worth knowing: it is the earlier of the date the payment is entered in the supplier books of account and the date it is credited to the supplier bank account. A cheque banked late does not buy you a later time of supply if you had already recorded the receipt.

The four tests side by side

The four situations most businesses encounter are set out below. Each row is an earliest-of test: you compute every applicable date and take the one that falls first.

Reverse charge: a different set of tests

Under reverse charge, the recipient pays the tax, so the tests are rebuilt around events the recipient can observe. The supplier invoice date still features, but only as an outer limit rather than a trigger.

For goods, section 12(3) takes the earliest of the date of receipt of the goods, the date of payment as entered in the recipient books or debited to their bank account, and the day following a prescribed number of days from the date the supplier issued the invoice. For services, section 13(3) drops the receipt limb — there is nothing to receive — and takes the earlier of the date of payment and the day following a prescribed number of days from the supplier invoice date. The exact number of days differs between the two provisions, so read the current text rather than working from memory. Where neither can be determined, both sections fall back to the date the recipient enters the supply in their books.

There is a variant for imported services from an associated enterprise: the time of supply is the earlier of the date of entry in the recipient books of account and the date of payment. Because the books entry is one of the two triggers, an accrual raised at year end for a group management charge can create a reverse-charge liability in that period even though nothing has been remitted. Groups that book intra-group charges on an accrual basis should be checking this deliberately, not discovering it in an audit.

One structural point that catches people out: the outer-limit day count runs from the supplier invoice date, and an unregistered or overseas supplier may issue that invoice long before you process it. The clock is not your accounts payable clock.

Continuous supply, vouchers and the other special cases

Continuous supply

A continuous supply of goods is one made on a recurring basis under a contract, with periodic invoicing or periodic payment. Section 31(4) requires the invoice to be issued before or at the time each successive statement of accounts is issued or each successive payment is received — so the contract milestones, not the physical deliveries, drive the time of supply.

For a continuous supply of services, section 31(5) works through three cases. Where the due date of payment is ascertainable from the contract, the invoice must be issued on or before that due date, whether or not the payment arrives. Where the due date is not ascertainable, the invoice is issued before or at the time the supplier receives the payment. Where payment is linked to the completion of an event — a project stage gate, a certified milestone — the invoice is issued on or before the date of completion of that event. The contract is therefore doing real tax work, and a badly drafted milestone schedule creates timing risk that no amount of careful bookkeeping will fix.

Vouchers

Sections 12(4) and 13(4) split vouchers in two. If the supply against which the voucher can be redeemed is identifiable at the time of issue — a voucher for one named product at a known rate — the time of supply is the date of issue. If it is not identifiable, as with a general-purpose gift card spendable across a whole catalogue at different rates, the time of supply is the date of redemption. The test is identifiability of the underlying supply, not the value on the card.

Interest, late fee and penalty on delayed payment

Where a supplier charges interest, a late fee or a penalty because the customer paid late, that charge is an addition to the value of the original supply. Sections 12(6) and 13(6) fix its time of supply as the date on which the supplier receives that addition. It is one of the few genuinely receipts-based rules in the Act, and it means you do not have to accrue tax on late-payment interest you have billed but not collected.

Goods sent on approval

For goods sent on approval or on a sale-or-return basis, section 31(7) requires the invoice to be issued before or at the time the recipient accepts the goods, or six months from the date of removal, whichever is earlier. The six-month outer limit is the point: stock sitting with a dealer that has neither been approved nor returned becomes a taxable supply at that mark, whatever the commercial reality. Businesses that place goods with distributors on this basis need an ageing report against the delivery challan, not just against the invoice.

The residual rule

Where none of the above produces an answer, sections 12(5) and 13(5) supply a default: if a periodical return has to be filed, the time of supply is the date on which that return is due; in any other case, it is the date on which the tax is paid. It is rarely reached, but it exists so that no supply is left without a time.

Month-end, year-end and the cost of getting it wrong

Everything above converges on one operational control: the invoice cut-off. Because section 31 fixes the deadline for issuing an invoice, and section 12 or 13 then pins the time of supply to that deadline whether or not you met it, the invoice date is the lever most businesses actually pull. Our guide to GST invoice format and rules sets out the issue deadlines for each category of supply, and they are worth writing into the month-end checklist rather than leaving to the billing team.

A March despatch invoiced in April is the classic expensive mistake. The goods moved in March, so the time of supply is March, so the liability belongs in the March GSTR-3B and the invoice belongs in the March GSTR-1. Dating the document April creates three separate problems at once: understated output tax in March with interest running on it, an invoice sitting in the wrong GSTR-1 period, and a document that will not reconcile against the customer books. Correcting it after the fact means amendments, or a credit note and a fresh invoice, neither of which is free.

At a financial year end the stakes rise, because your customer credit is on the line as well as your own interest. Input tax credit is subject to the outer deadline in section 16(4), tied to the financial year in which the invoice was issued, and a supply pushed across the year end can land the invoice in a year that leaves the buyer with less time — or no time — to claim. The ITC time limit under section 16(4) is a hard cut-off, and a customer who loses credit because of your invoice date will treat it as your problem.

Three controls handle most of this. Reconcile despatch documentation against invoices at each month end, so that goods that moved are invoiced in the period they moved. Track advances received for services separately from advances for goods, because only the first creates an immediate liability. And maintain a reverse-charge register keyed to the supplier invoice date rather than to your payment date, so the outer limit is visible before it passes rather than after.

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