The government understands the issues being faced by businesses pertaining to the blocking of working capital and as a solution to this problem, it has decided to exempt businesses from deducting GST on advances received for supplying goods in the future. In the previous month, the Central Board of Excise and Customs (CBEC) stated that all businesses having a turnover of up to INR 1.5 crore will be exempted from deducting GST on advance payment for goods supplied. Through a recent notification, the CBEC has extended this discharge to all business, excluding the ones who have opted for the composition scheme. This composition scheme is open for all businesses whose turnover rests below the threshold of INR 1 crore and they have the freedom to pay taxes at a lower rate of one percent.

"This comes as a huge sigh of relief for businesses both in terms of compliance as well as working capital loss," EY India Tax Partner Abhishek Jain said. Businesses had pressed their case hard with the Finance Ministry to relieve them from deducting GST on advances received for supply of goods as this custom was not there in the former indirect tax structure of excise duty or VAT regime.

"In a significant relief to the industry, the government, through a notification, has done away with GST on advance received against supply of goods. This meets the long standing demand of the industry, particularly by FMCG and auto," said PwC Leader-Indirect Tax Pratik Jain.

Nevertheless, service providers are bound to continue to subtract GST on any advance received as payment which is in line with the obligations set forth under the previous service tax laws.

"While the issues in respect of payment of GST on advances for supply of goods, which was leading to significant working capital and other challenges, appears to be resolved for now, similar working capital blockages for service providers continue," said Deloitte India Partner GST M S Mani.