GST on Deposit Works: Advance Payments and Time of Supply
The Appellate Authority for Advance Ruling confirmed that funds received for 'Deposit Works' are taxable as advance payments upon receipt.
- Ruling
- Order No. 12/AAAR/29/06/2020 dated 29-06-2020
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Funds for 'Deposit Works' are considered advance payments for services.
- GST is due at the time of receiving funds, not when spent.
- The value of supply is the total amount of the advance received.
In short
The Uttar Pradesh Avas Evam Vikas Parished asked whether money received from the government for specific projects should be taxed when received or when spent. The authority decided that because these funds are for services, they are advance payments and must be taxed immediately upon receipt under the Goods and Services Tax (GST) law.
What has changed
How it worked before
Some businesses assumed that if funds were restricted to specific projects and interest had to be returned, they were merely 'deposits' and not taxable advances until the money was actually spent.
What has changed
The ruling confirms that strict conditions on how money is used do not change its status as an advance payment. In practice, this means you must pay GST on the full amount received from a client as soon as the money hits your account, regardless of project progress.
Who this affects
Government agencies, public sector undertakings, and contractors who receive project funds in advance from government departments.
An example
A construction firm receives a large advance from a municipal body to build a community center. The firm argues they should only pay GST as they spend the money on materials. Based on this ruling, the firm must pay GST on the entire advance amount as soon as they receive the payment.
What you should do
If you receive similar project funds, you should prepare to pay GST upon receipt. Remember that an Advance Ruling only binds the specific business that asked for it and their local tax office; it is not a general law that applies to everyone automatically.
If you do nothing
If you treat these funds as non-taxable deposits and a tax officer disagrees, you may face demands for unpaid GST plus interest and penalties. Relying on a ruling that does not apply to your specific case can lead to costly disputes during an audit.
The terms explained
- Advance payment
- Any money received before you actually provide the service or deliver the goods.
- Time of supply
- The specific point in time when a transaction is considered to have happened for tax purposes, determining when GST must be paid.
- Consideration
- The payment or value given in exchange for goods or services provided.
The ruling in detail
Appellate Authority for Advance Ruling
M/s Uttar Pradesh Avas Evam Vikas Parishad
Order No. 12/AAAR/29/06/2020 dated 29-06-2020 · Uttar Pradesh
Questions before the authority
- What is the time of supply in case of 'Deposit Works' being executed by the applicant whether it is the time of receipt of funds from the client government department or the time when expenditure incurred towards execution of the work is debited to 'Deposit Works account'?
- What shall be the value of supply in aforementioned two alternatives?
Facts
The applicant is a state board entrusted with executing housing and improvement schemes, often undertaking 'Deposit Works' for the government. They receive funds in advance for these projects, which are subject to strict conditions, including that funds must be used only for the specific project and any interest earned must be returned to the government. The applicant argued these funds are not 'advance payments' but rather 'deposits' and should not be subject to GST until utilized.
Ruling
| Question | What the authority ruled |
|---|---|
| Time of supply for Deposit Works | The time of receipt of funds from the client government department. The authority rejected the contention that the time of supply is when the funds are utilized. |
| Value of supply for Deposit Works | The amount of advance received by the applicant towards that particular work/supply. The authority held that the advance is taxable upon receipt. |
The Appellate Authority upheld the original ruling, confirming that the funds received for 'Deposit Works' constitute advance payments for the supply of services. Consequently, the time of supply is the date of receipt of funds, and the value of supply is the amount of advance received.
Reasoning
The authority reasoned that the funds received are for the provision of services and fall under the definition of advance payments. It relied on Section 13 of the CGST Act, which mandates that the time of supply for services is the earliest of the date of invoice or the date of receipt of payment. The authority noted that the applicant's own accounting practices reflect these amounts as liabilities, confirming their nature as advances. It further clarified that the proviso to Section 2(31) of the CGST Act does not exempt these funds from being treated as consideration for supply.
Provisions relied on
- Section 2(31) of the CGST Act, 2017
- Section 12 of the CGST Act, 2017
- Section 13 of the CGST Act, 2017
- Section 31 of the CGST Act, 2017
For the practitioner
This ruling clarifies that government agencies receiving funds for 'Deposit Works' must treat such receipts as **advance payments** subject to GST at the time of receipt. It settles the debate by confirming that strict conditions on fund usage do not alter the taxability of the advance. Practitioners should advise clients that such deposits are **taxable upon receipt** regardless of whether the funds are immediately utilized for project expenditure.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2024-02/up_aaar_12_2021-22_29.06.2021_upaevp.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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