Income tax treatment on credit note

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 23 June 2011

let the document come to your hand, and upon receipt only you can book it into accounts,

i assume that during your next purchase order, they will allow u to get goods free of cost upto the credit note, when you would be able to book the purchase at zero cost,

Sohil (Learner) (631 Points)
Replied 23 June 2011

Originally posted by : U S Sharma
	let the document come to your hand, and upon receipt only you can book it into accounts, i assume that during your next purchase order, they will allow u to get goods free of cost upto the credit note, when you would be able to book the purchase at zero cost,

Yes suppose i buy product worth rupee 3 lakh next time with the normal 2% cash discount ill get 2 lakh worth rupee off and will have to pay the difference.

But most important thing i am worried is my big shot neighbor suggesting to take credit note into accounts in this year business profit(i am not aware right now even whether to take it in profit or not).

His funda is the year for which you get the credit note for that same year you should pay taxes on it including it in your business profit(2010-2011 tax filing).

You cant deffer it he says.

But we dont have any document evidence except the document we made purchase of products which crosses some points and that points gets converted to tata nano car.

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 23 June 2011

it would be promotional income, not to be reduced from your purchase, and such incomes are to be taxed in year of "actual receipt" only.

say you got a nano car, on which date? can u book the car in accounts prior to its receipt? on what basis?

the company has been shown his interest to offer you on the basis of "past year performance" which can be claimed in current year only,

in my personal view i would like to have a nano with zero value in books :) and dispose off the old car if any has been more than five year+ old life.

Sohil (Learner) (631 Points)
Replied 24 June 2011

Sorry but how do the car carry zero value in books?If so will it add on assets side on P-L statement?

Actually my old car too is tata nano.But its bought on my sister name which has nothing to do with our business.Plus its just one and half year old. Also its top model whereas the company offering us in basic model so we are no way keen in getting it.

WHich is the most tax efficient deed we must do.Get the car or go for the credit note?

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 24 June 2011

as per your version, you had to get a car free of cost ( it was gift in kind, not in cash) so there is no burden to maintain such big books of accounts for such transactions, it would go as capital receipt ( Gift)

in case of credit notes, you have to wait for their letter or clarification.

Sohil (Learner) (631 Points)
Replied 24 June 2011

But i guess from last year even gift received other than cash too is taxable.Though i am not sure on whose hands.

If i go with car i am sure ill sell it as soon as i receive it .

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 24 June 2011

Thats why i asked you not to go with previous year accounts and wait for their responce in current year, any such receipt would be taken in current year and if taxable than tax liability would arise in the year of actual receipt only, either by way of kind or in cash ( credit note)

Sohil (Learner) (631 Points)
Replied 28 June 2011

Okk U s sharma.Here is the bill on which i have been given credit note. Also lot of doubt has also come into mind but i guess ill ask one by one so that properly i understand the working Here is the link https://img829.imageshack.us/img829/7104/img0001jp.jpg My first doubt is the tallying of the bill correct. I mean the person here first made the overall total excluding VAT and than applied credit note than the figure which he got on that VAT was applied. I have a feeling this is wrong way of calculation ,i feel first overall total,minus cd minus 7000 amount than Vat on it must be calculated and than credit note applied on it. Though the amount of cheque i need to pay will be more but i guess thats the correct way to calculate am i right? Credit note is of 1 lakh 35000 rupees.and the other 7000 and 2% cd are normal discounts i receive.

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 30 June 2011

such scheme should be accounted as "quantity cash discount" and the purchase would be booked at lowevalue, however at return stage you will have to show full value of purchase to avail input credit, and credit cash discount for the amount reduced.

Sohil (Learner) (631 Points)
Replied 30 June 2011

Is the working of bill proper sir.

I mean vat on reduced value or it should be the exact purchase amount on which whatever vat figure comes that and than discounted cash discount added.That way bill amount comes to 52000-53000.

Also another question not related to this bill on another bill of 1 lakh 12 500 amount 1 lakh rupee worth of purchase and twelve thousand five hundred rupee vat paid on it.Now while checking the bill i found some discounts were not deducted.

When asked the salesperson said the 4000 amount rupee discount should be deducted and cheque paid on same. So the total cheque paid is 1 lakh 8500 rupees.Now i have a doubt how should i take the entry into my book.If i take purchase of 96000 vat at 12.5% goes to 1 lakh eight thousand rupees.That way it looks i paid 500 rupees excess vat.Or should i mention the purchase as 96445 that way the figure tallies .But the vat forwarded by company to vat dept is 12055 or 12500 as original bill ?