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TAX for Individual Services (Contractor in IT) is on cash basis or accrual basis?

K K (1 Points)

04 February 2024

I provide IT services on contract to an IT Company in Maharashtra. (Resident of Maharashtra).

I provide my monthly service, and raise the invoice in subsequent month. For the month of Jan, the invoice is raised in Feb and is paid in Feb. For services provided in March 2024, the invoice will be raised in April 2024 and paid in April 2024.

1. Will the money for the services rendered in March 2024 and payment received in April 2024 be considered in FY 23-24 or FY 24-25 for tax purposes?

2. Or Do I have a choice about which financial year can I show this money in?

Thanks.

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13 Replies

RAJA P M ("Do the Right Thing...!!!") (127654 Points)
Replied 04 February 2024

Here no more doubts...

You raised invoice in the next month (subsequent) so the income will be calculate in next month...

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prasad Nilugal ( GST Practitioner & Accounts ) (14269 Points)
Replied 04 February 2024

You have take care that , if services are provided in March 24 ., then as per section 47 of the CGST rules 2017 , you must have to raise the Tax Invoice within the 30 days from the date of Supply of Service . ( 30 days is time period ) .

RAJA P M ("Do the Right Thing...!!!") (127654 Points)
Replied 04 February 2024

Dear @ Mr Prasad Nilugal,

Query is not about GST and Billing doubts like (when will raise invoice).

Query about accounting about the income. when wil show the said income march or April...

Please check and confirm once again if it's wrong....

prasad Nilugal ( GST Practitioner & Accounts ) (14269 Points)
Replied 04 February 2024

Ok..........................................

1 Like

Saravanan nagaraj (463 Points)
Replied 04 February 2024

There are 3 types of system is being followed

1) Cash basis

2) Accural basis

3) Mercantile (both 1&2)

When you raise invoice, it is treated in Accural basis as you earned income.

In cash basis, when you receive money against invoice. It will be treated as income earned.

At the end of financial year, as per Ind As income recognition article will help you further.

To resolve, You can raise invoice at the end of 31/3/24, that invoice accounted as outstanding in your client ledger.

These cash or Accural basis declaration is necessary in Tax Audit, the business who has turnover more than 5cr or if you have cash transaction more than 5% receipts or payment for the financial year turnover exceeded 2cr.

Thanks.

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prasad Nilugal ( GST Practitioner & Accounts ) (14269 Points)
Replied 04 February 2024

Why I mentioned rule 47 of the CGST rule , because if his business is on Accrual basis, and if his supply of service on 1 March or 2 March., then he has to issue tax Invoice on before 31 st March as per the rules (within 30 days) ultimately he has to record transaction in the month of March 23 after issuing tax Invoice,. So on Accrual basis, this particular transaction pertains to F.Y 23-24 not in F.Y 24-25 . So it's totally depends when he has completed his service, if he completed after 2nd of March then date falls to issue invoice in April so no issue , then transaction pertains to F.Y 24-25.

As per my knowledge quriest want to ask , that this particular transaction pertains to which Financial year for tax purpose ? in terms of Accrual basis or Cash basis . F.Y 23-24 or 24-25 .

RAJA P M ("Do the Right Thing...!!!") (127654 Points)
Replied 04 February 2024

Here no more base for argument for who is correct which one correct...

We want to give Reply, Solution & resolve to the against the query.

That's it...

We have exceptional knowledge in everything. But, That's will help to query...

This is my stands....

After my reply (this) please read once again the query please....

How your reply Support the query...

Also the 5th reply is same way

prasad Nilugal ( GST Practitioner & Accounts ) (14269 Points)
Replied 04 February 2024

No , Sir I explained how I understood query so no issue.

RAJA P M ("Do the Right Thing...!!!") (127654 Points)
Replied 04 February 2024

Originally posted by : prasad Nilugal
	Why I mentioned rule 47 of the CGST rule , because if his business is on Accrual basis, and if Completed his service on 1 March or 2 March., then he has to issue tax Invoice on before 31 st March as per the rules (within 30 days) ultimately he has to record transaction in the month of March 23 after issuing tax Invoice,. So on Accrual basis, this particular transaction pertains to F.Y 23-24 not in F.Y 24-25 . So it's totally depends when he has completed his service, if he completed after 2nd of March then date falls to issue invoice in April so no issue , then transaction pertains to F.Y 24-25. As per my knowledge quriest want to ask , that this particular transaction pertains to which Financial year for tax purpose ? in terms of Accrual basis or Cash basis . F.Y 23-24 or 24-25 .

I don't know how it's applied in the query...

Generally Contractual services starting 1St to 30/31St after that only can raise invoices. In case any cancelled between dates then it's possible to raise invoice in between days...

Immediate billing can be raise by CA, CS, Accounting & Book Keeping, Service Engineers and any other services...

But,

Some of services raising bill in next day (or upto 10th) of the month. Bcoz, they can't raise bills on end of day without completing their works. Nobody accept this kind of billing like

Security service, Rental services, regular Transportation services, Part time Services, regular contract based services and some of other services who is working/servicing in full moths and raising bills in next days...

Please check any wrong in this reply

prasad Nilugal ( GST Practitioner & Accounts ) (14269 Points)
Replied 04 February 2024

Nothing wrong in your reply Sir , but in my view they have to follow rule 47 to issue tax invoice, with in 30 days from the service supply of service and record the transaction in the books on Accrual basis , if they are GST registered and following Accrual method . please refer rule 47 .

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RAJA P M ("Do the Right Thing...!!!") (127654 Points)
Replied 04 February 2024

Yes, You are exactly correct.

As per rule 47 issues tax invoice within 30days...

Monthly services is ended on 30/31st as per this taxpayer can raise 30th of the subsequent month.

Generally all the service provider issues invoices from 1st date to 10th date.

In year end some of (very some of) the clients ask Invoice in 31st march. Otherwise they will provide the service (expense in customers book) expenses through provisions...