Gross receipt or gross due-which is relevant for tax(44ada)?

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (177977 Points)
Replied 10 January 2018

For professional fees, as per recent accounting standards, it is based on the gross amount accrued, which includes dues of the services provided in the same period. You may refer Form 26AS for the same.

1 Like

Rohit Tulshyan (158 Points)
Replied 10 January 2018

the term gross receipt is not defined in the act.
further a section 145 says for the income of profits and gains from business and profession you have option wither you can follow cash basis or accural basis.
by which method u calculate your profit you have to regularly calculate on that basis each year.
so think it depends upon you that you can calculate as per cash or accural both.
and generally professionals follow cash basis.
its my opinion not say 100% .so plz confirm.

Rishi Mehta (Ur friend ) (1533 Points)
Replied 10 January 2018

Income computation & Disclosure Standard (ICDS)

As per Para 2(1) of ICDS IV- Revenue recognition {Revenue” is the gross inflow of cash, RECEIVABLES or other consideration arising in the course of the ordinary activities of a person from the sale of goods, from the rendering of services, or from the use by others of the person’s resources yielding interest, royalties or dividends}.

From the above definition it is very clear that the "Revenue" is not only the actual Cash receipt but also the amount receivable for the service rendered during the Financial Year.

Therefore, date of receiving revenue is not relevant; only the date of rendering service is relevant for calculating the Gross Receipt for the purpose of section 44ADA.

Rishi Mehta (Ur friend ) (1533 Points)
Replied 10 January 2018

Rohit Tulshyan (158 Points)
Replied 10 January 2018

but sir ICDS is not applicable to such individual who is not required to get his account audited us 44AB
because if some one opting presumptive scheme then he is not required to audit us 44ab..

Rishi Mehta (Ur friend ) (1533 Points)
Replied 10 January 2018

As such the term "Gross Receipt" has not defined under the Income Tax Act, 1961. But we have to take some base to support stand taken in computing "Gross Receipt" for the purpose of section 44ADA.

Dr.Jyothish Vijay (Dr) (214 Points)
Replied 10 January 2018

why can that standards be be..."when you actually recieve the money"? viz the cash system

If its a buissinessman...doing buissiness in March....he may get paid only on April or maybe in May or maybe even later....shouldn't the date at which he recieves the payment be relevant then?

If I have an FD....do i pay tax on interests recieved depending on when you recieve it...or use this mercantile system?

Anyway I have till now followed the "cash system"......Last year I recieved the March 2017's professional fees on April and this amount is being included in the calculations for the financial year 2017-2018.

Dr.Jyothish Vijay (Dr) (214 Points)
Replied 10 January 2018

And please see the following sections of the IT act

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Method of accounting.

145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.

(2) The Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income.

(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2), the Assessing Officer may make an assessment in the manner provided in section 144.

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I believed that section 145 (1) indeed applies for me and all these years I have been following the cash system. (Its just that this year if I follow mercantile system-I stand a loss-->thats another story altogether). I understand that the section 145 (1) is subject to provisions of subsection (2). But if for some reason contained within section 145 (2) I am to follow the mercantile system as you were saying....then is there a relevance for the section 145 (1) at all?

Dr.Jyothish Vijay (Dr) (214 Points)
Replied 10 January 2018

Ok..now I have read up ICDS (notification no:87/2016)

It states:

S.O. 3079 (E) In exercise of the powers conferred by sub-section (2) of section 145 of the Income-tax Act, 1961 (43 of 1961, the Central Government hereby notifies the income computation and disclosure standards as specified in the Annexure to this notification to be followed by all assessees (other than an individual or a Hindu undivided family who is not required to get his accounts of the previous year audited in accordance with the provisions of section 44AB of the said Act) following the mercantile system of accounting, for the purposes of computation of income chargeable to income-tax under the head “Profits and gains of business or profession” or “Income from other sources"

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If I am not following the mercantile system till now...i think the underlined segments of the above act make it inapplicable for me...isn't it?

Rishi Mehta (Ur friend ) (1533 Points)
Replied 10 January 2018

Guidance Note on Tax Audit under Section 44AB of the Income-tax Act, 1961.

Refer above Guidance Note. Evething is provided therein.

Dr.Jyothish Vijay (Dr) (214 Points)
Replied 10 January 2018

10.22 The above Accounting Standards are to be followed by all assessees following mercantile system of accounting. Therefore, it is clear that those assessees who are following cash system of accounting need not follow the Accounting Standards notified above

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That's what it says..and this too:

Once the choice of method of accounting is decided, the assessee must follow
consistently the method of accounting employed

Rishi Mehta (Ur friend ) (1533 Points)
Replied 10 January 2018

Its ok. Read out Guidance Note on Tax Audit under Section 44AB of the Income-tax Act, 1961.
Specially go through the page No. 21 to 23

Dr.Jyothish Vijay (Dr) (214 Points)
Replied 10 January 2018

I read that document.. I will upload it here later on even Please read section 10.22 of that document... It says that whatever described (including page numbers 21 to 23) are applicable only if I follow mercantile system. If I follow cash system, it's not applicable The extract pasted in my previous reply is taken from the Guidance Note on tax audit revised 2014 edition

Dr.Jyothish Vijay (Dr) (214 Points)
Replied 10 January 2018

Ok here is the extract from it where it tries to explain gross receipts for professionals

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5.19 In the case of a professional, the expression "gross receipts" in profession would include all receipts arising from carrying on of the profession. A question may, however, arise as to whether the out of pocket expenses received by him should form part of his gross receipts for purposes of this section. Normally, in the case of solicitors, advocates or chartered accountants, such out of pocket expenses received in advance are credited in a separate client's account and utilised for making payments for stamp duties, registration fees, counsel's fees, travelling expenses etc. on behalf of the clients. These amounts, if collected separately either in advance or otherwise, should not form part of the "gross receipts". If, however, such out of pocket expenses are not specifically collected but are included/collected by way of a consolidated fee, the whole of the amount so collected shall form part of gross receipts and no adjustment should be made in respect of actual expenses paid by the professional person for and/or on behalf of his clients out of the gross fees so collected. However, the amount received by way of ...advance for which services are yet to be rendered will not form part of the receipts, as such advances are the liabilities of the assessee and cannot be treated as his receipts till the services are rendered.

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Here again "gross receipts" are described as "receipt". The "receivable" clauses in ICDS would kick in only if the mercantile system is adopted, is what I understand.

Further...this guideline at various places (as given by me in previous replies) say that according to section 145 (1) one who derive income under the head "profits and gains of buissiness or profession" can use either the cash or mercantile system of accounting

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