Income received in advance

" we postpone tax liability on commission received in advance till next year?"

Check TDS deducted and take call.....

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.

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...

Even if TDS has been deducted on whole amount. You can offer the current year commission as Income and remaining as advance.
Please note that you have to mention and claim TDS in your Current year income only to the extent that relates to current year income.

In the next year, when you offer remaining advance commission amount as Income, You have to mention and Claim TDS amount deducted in previous year for advance made to you.

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.

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.

Also you can refer this article.

 

https://www.indiantaxupdates.com/inclusions-exclusions-from-sales-turnover-gross-receipts-for-tax-audit-us-44ab/

If current year income consists of only this 82,00,000 ... And turnover doesn't exceed 1 crore. There is no need to go for Tax Audit provided your net profit is 8% or more..

Receipt of cash or cash equivalent exceeding 1 crore ..which includes advance, doesn't amount to Turnover as mentioned for 44AB.