Concept & Meaning of Turnover in Tax Audit

CA.R.S.KALRA | Last updated: 14 March 2022

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Quick Summary

Turnover, gross receipts, and sales are crucial terms for tax audits, acting as the initial criteria to determine audit liability under Section 44AB of the Income Tax Act. While 'turnover' isn't explicitly defined in the Act, it generally refers to the total amount from sales or services rendered. Various factors like trade discounts, sales returns, and the sale of fixed assets or investments can affect its calculation, with specific rules applying to commission agents and different accounting methods.

How to calculate the gross receipt or turnover? Turnover, Gross Receipts and Sales are the buzzwords during this Tax Audit season. Incidentally, they are the very starting point of a Tax Audit. They form the qualifying criteria, determine whether a taxpayer is liable to tax audit during a given y

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FAQ :

Turnover, in the context of a tax audit under Section 44AB of the Income Tax Act, refers to the aggregate amount for which sales are effected or services rendered by an enterprise.

If an inclusive method of accounting is used, and sales prices include sales tax and excise duty, no adjustment is made for these when calculating turnover.

Yes, trade discounts can be deducted from sales to determine turnover. However, commission allowed to third parties cannot be deducted.

No, sale proceeds of fixed assets do not form part of turnover as they are not held for resale.

For 'kachha arahtias' (agents acting solely for their principal), only the gross commission is considered turnover. For 'pacca arahtias' (who can substitute their own goods), the total sales/turnover is considered.

Generally, advances received for services yet to be rendered are not included in gross receipts, as they are considered liabilities until the services are performed.