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Can income accrued be declared, using Mercantile accounting, without invoice?

Dinesh (CS) (36 Points)

15 July 2023

Business/Profession: Freelancing in Upwork.

Type of income calculation: Presumptive/44ADA

A client worked without any formal agreement in Upwork for a foreign company from Jan 2023 to April 2023. But invoice is generated only on July 2023 and paid fully and TDS deducted by Upwork for FY24. Is it possible to declare 3/4th of this income in FY23 ITR return, using Mercantile type of accounting, since the income is accrued only during FY23? If so, what documents are required for this? The only evidence that they worked during this period is the chat history between the client and their company. Note that client is not required to maintain any books of accounts as they're filing under 44ADA.

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10 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177810 Points)
Replied 15 July 2023

The service receiver has accounted it in the FY 2023-24, under mercantile accounting.

Without any evidence how can you prove that the services were provided in FY 2022-23?

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sabyasachi mukherjee (27574 Points)
Replied 15 July 2023

Yes income accrued can be declared.

Dinesh (CS) (36 Points)
Replied 15 July 2023

Originally posted by : Dhirajlal Rambhia
	The service receiver has accounted it in the FY 2023-24, under mercantile accounting. Without any evidence how can you prove that the services were provided in FY 2022-23?

Thanks. Let's say if it is mentioned in the July 2023 invoice line item - that the payment is for the "services rendered from Jan 2023-Apr 2023" Then would it be possible to put it in the FY22-23? I've been researching this a bit and found Proportionate completion method in AS-9 and M/s. Optum Health & Technology (India) Pvt. Ltd. Vs ITO (ITAT Bangalore) ITA No.1068/Bang/2016 which essentially says bills are not needed for accrual of income. The only problem then would be the TDS mismatch... Right?

One last thing, You said four years ago that, this upwork export income cannot be considered foreign source of income(https://www.caclubindia.com/forum/details.asp?mod_id=526560). Therefore, we can file ITR4 right? Because itr4 guidelines says ITR4 cannot be filed by "(e) has income from any source outside India".

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177810 Points)
Replied 15 July 2023

1. Confirmation of services received (from receiver) in quarter Jan to March 2023, is must.

2. Though it is debatable issue, still am of the view that you can file ITR 4.

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Dinesh (CS) (36 Points)
Replied 15 July 2023

Originally posted by : sabyasachi mukherjee
	Yes income accrued can be declared.

@ sabyasachi What about the TDS mismatches in Forms 26A and 16A? TDS will only be deducted next year, but next year total income shown as per TDS would be much higher than actual declared income, which may unnecessary practical issues.

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Dinesh (CS) (36 Points)
Replied 15 July 2023

@ Dhirajlal Thanks for your time. Even if we use ITR3, there issues shown by the original poster (https://www.caclubindia.com/forum/details.asp?mod_id=526560) is still not resolvable - Schedule FA and FSI seems to be unfillable...

FSI - what would even be the TIN?

FA - Should we fill item G(even though it is business income)?

If you have any update regarding this, kindly update here or the original post.

PS: I don't know the intricacies of the rules of this forum. If this should be a different post, kindly let me know.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177810 Points)
Replied 15 July 2023

When these schedules are applicable then no need fill anything there.

If you have any foreign assets like bank account, investment etc., then only it would be applicable.

Dinesh (CS) (36 Points)
Replied 15 July 2023

@ Dhirajlal Forgive me if I'm mistaken, but I thought the only purpose of disallowing ITR4 for "foreign sources of income" is for these schedules to be filled. Right? As the original poster says("After selecting yes of Part B - TTI 14th I have no choice but to fill the details in schedule FA but question is where and how ?" https://www.caclubindia.com/forum/details.asp?mod_id=526560) If you say "Yes" to foreign sources of income, then it won't let you submit, unless you fill these schedules. But there's nothing to fill there, I think. Do you think Upwork virtual account qualifies as a foreign bank account? Money from service receiver goes to Upwork escrow, then to freelancer's upwork virtual account and then paid out regularly(or on demand) to the freelancer. There might be some money in there remaining at the end of FY, but that account is a virtual account as far as I can see. The actual bank account would have all the money pooled from different freelancers. TDS(in rupees) is also paid by Upwork upon payment by the service receiver(i.e., upon amount attributed in virtual account - not when money goes to freelancer's bank). I believe the money remaining there(if any) would be "sundry debtors"(for 44ADA) or Accounts receivable and not a foreign asset, even if it is in a different currency. So the question simply remains: What to fill in schedule FSI/FA, when you say "Yes" to foreign sources of income?

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Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177810 Points)
Replied 15 July 2023

As said earlier, it is debatable issue. Those in Favour of labelling it as foreign income may reply it. I am not.

1 Like

gYByGhvPqdsvP97$ (freelancing) (22 Points)
Replied 21 July 2023

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