JERRY JOHN (62 Points)
15 March 2018Please clarify income tax liability on commission/brokerage received in advance. Commission received is partly for current FY and partly meant for the next financial year. Can we postpone tax liability on commission received in advance till next year ? If so how to treat this in our books of accounts. Please also help me providing relevant sections in Tax Laws.
Dhirajlal Rambhia
(SEO Sai Gr. Hosp.)
(168037 Points)
Replied 15 March 2018
" we postpone tax liability on commission received in advance till next year?"
Check TDS deducted and take call.....
A B Kundu
(Professional)
(1422 Points)
Replied 15 March 2018
I think if you book the whole receipt as revenue, you have to offer such amount for tax. Rather, you deduct the advance amount from the total receipt and show the advance amount as your liability in the books of a/c.
For E.g. - Commission income earned during the year for Rs.11,000 out of which Rs.1,000 pertains to next FY. In this case you need to pass the following entry:
1) Bank A/c Dr. 11,000
To, Commission Income A/c 10,000
To, Commission Received in Advance A/c 1,000
Here, Rs.1,000 will be shown under Liability side of the Balance Sheet and net Rs.10,000 has been offered for tax purpose.
Next year, you have debit the Commission Received in Advance A/c and credit the Commission Income A/c to book the revenue.
But, if the TDS has been deducted on the whole amount in the year of receipt, you have to book the whole amount as your revenue.
JERRY JOHN
(62 Points)
Replied 15 March 2018
Your reply sounds very useful. Since there is no TDS on commission received, I will put off tax liability on advance portion till next year.
Thanks again...
CA Vijeta Nathani
(Chartered Accountant)
(505 Points)
Replied 15 March 2018
JERRY JOHN
(62 Points)
Replied 15 March 2018
Thanks Vijeta.
Request one more clarification from this forum.
Is it necessary to consider the advance amount while determining Gross Receipt/Turnover for tax audit purpose?
Example:
Commission pertains to current FY: 82 lakh
Advance commission received for next year: 22 lakh
As you know, tax audit is mandatory if the gross receipt is above Rs.1 crore
In the above example, since the income for the current FY is only below the thresh hold limit for tax audit, is it necessary necessary to go for tax audit in the current FY.
A B Kundu
(Professional)
(1422 Points)
Replied 15 March 2018
There is no proper definition of the word "Turnover" in the Act, but In the books of accounts, as you are treating the advance commission as the liability, that means you are not including such advance amount in the turnover. Hence, it can be inferred that such advance is not to be reckoned as part of the turnover for the purpose of Sec.44AB.
A B Kundu
(Professional)
(1422 Points)
Replied 15 March 2018
Also you can refer this article.
https://www.indiantaxupdates.com/inclusions-exclusions-from-sales-turnover-gross-receipts-for-tax-audit-us-44ab/
CA Vijeta Nathani
(Chartered Accountant)
(505 Points)
Replied 15 March 2018
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