CHANGE IN RATE OF TAX IN RESPECT OF SUPPLY OF GOODS OR SERVICES

When the rate of tax is changed, and a transaction of supply of goods or services is not yet completed in all its documentary and financial aspects, the law makes specific provisions for fixing the time of supply of the goods or services for the purpose of payment of tax.

The three markers for identifying the time of supply are actual supply, invoice, and payment. These can occur in differing sequences. Their distribution before and after the change of an effective rate of tax determines the time of supply of the service.

Of the three markers (supply, invoice, payment), –

  1. If the invoice and receipt of payment are both before the change in rate, the time of supply is the date of the earlier of these two events.
  2. If supply and issue of the invoice are before the change in rate, the date of issue of the invoice is the time of supply.
  3. If supply and receipt of payment are before the change in rate, the date of receipt of payment is the time of supply.
  4. If supply and receipt of payment are after the change in rate, the date of receipt of payment is the time of supply.
  5. If the invoice and receipt of payment are after the change in rate, the date of the earlier of these two events is the time of supply.
  6. If supply and issue of the invoice are after the change in rate, the date of issue of the invoice is the time of supply.

Meaning of “Date of receipt of payment”

Here, “date of receipt of payment” refers to the date on which the payment is entered in the books of accounts of the supplier, or the date on which the payment is credited in his bank account, whichever is earlier. 

Date of crediting of payment in the bank account to be the “date of receipt of payment” if such crediting takes place after 4 working days of a change in the rate of tax

Where the payment is credited in the bank account after 4 working days from the date of the change in the rate of tax, the date of receipt of payment will be the date of credit in the bank account. In other words, in such a case, the date of recording the payment in the books of account will not be considered as the date of receipt of payment even though if the same precedes the date of crediting of payment in the bank account. 

Example: The rate of tax is changed on 10th July. Receipt of payment is recorded in the books of account of the supplier on 8th July. The payment is credited to the supplier’s bank account on 15th July. The Bank was open every day between 10th and 15th July. Here, the date of receipt of payment is 15th July.

It can be seen from a study of these provisions, that the timing of two of the three markers (supply, invoice, payment) determines the time of supply. If any two of them occur before the change in the rate of tax, the time of supply will fall in the period before the change in the rate of tax i.e., the old rate will be applicable. However, if any two of them occur after the change in the rate of tax, the time of supply will fall in the period after the change in the rate of tax i.e., a new rate will be applicable.

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