Treatment of commision income

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TR Nagaraja (Querist)
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12 May 2009 i hav a business of Manfacuring units. What ever amount received from debtors deposited into bank. Every thing is clear cut on sales bills and collection of amount. Apart from business i have received commission from our clients, towards commission for some works. they are deducted TDS at 10.3%. Cheques issued in my name and deposited in my S.B. aCCOUNT I Have to declare this income to department. My question is how include income in business, and while Entering in the software under which head i have to show and profit loss a/c i have to show two account one from buiness and one from commission income. HOW CEN I SHOW?

CA CS CIMA Prakash Somani

CA CS CIMA Prakash Somani (Expert)
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13 May 2009 This will be shown under Income from other Source and P&L credit side.

TR Nagaraja

TR Nagaraja (Querist)
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13 May 2009 if commission cheque deposited in to personal S.B account not in business current a/c Then ? As per your answer credited to profit and lose a/c and Debited to which a/c ?

jegannath G

jegannath G (Expert)
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13 May 2009 it will be income from other sources only. but should be debited to your personal capital account

TR Nagaraja

TR Nagaraja (Querist)
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14 May 2009 In our balance sheet our capital is around 5 lakhs but if i debited commission income from capital around 8 laksh, captial wll become negative, Shall we show it as it is? it is audit case under section 44AB.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 Got it! Here’s how you can treat the **commission income** in your accounting and tax records:

### 1. **Classification of Commission Income**

* Since you run a manufacturing business, your **main business income** comes from manufacturing & sales.
* The **commission income** you earn separately (for other work) is **not part of your main business**.
* So, commission income should be shown under **"Income from Other Sources"** in your Profit & Loss account, **not mixed with your manufacturing business sales**.

### 2. **Accounting Entries**

* When you receive commission cheques (deposited in your personal SB account), the entry would be:

```
Bank Account (Personal) Dr
To Commission Income (P&L A/c - Other Income)
```

* In your **Balance Sheet**, this commission income does **not go into Capital Account**. The capital account is for **owner’s equity or capital introduced**.

* **Capital account should not be debited or credited** for commission income.

### 3. **Presentation in Profit & Loss and Balance Sheet**

| Financial Statement | Where to show |
| --------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- |
| Profit & Loss Account | Show commission income under "Income from Other Sources" separately from business sales |
| Balance Sheet | No direct effect on Capital Account due to commission income; it increases your overall profit, which then flows into capital (retained earnings) |

### 4. **Regarding Negative Capital Concern**

* Your **capital account will not go negative** just because you credit commission income to P\&L.
* Capital changes due to:

* Drawings by owner (which reduce capital)
* Losses (which reduce capital)
* Additional capital introduced (which increases capital)
* Commission income increases profit, which increases retained earnings, and hence capital.

---

### Summary:

* Commission income = **Other income** in P\&L.
* Don’t mix commission income with manufacturing sales.
* Don’t debit or credit capital account directly for commission income.
* Your capital account won’t go negative because of commission income.

If you want, I can help you draft exact journal entries or show how to classify this in tax filing software. Would you like that?

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