Works contract.

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harish n p c (Querist)

30 November 2011 Dear Experts,
How to declare the turnover for the works contractors? They are mainly executed the works of PWD.& other Government departments. the completion of work they were giving a cheque after the deduction of TDS. at the end of the year they give form 16A.& Pending bills are laying with the department.they are giving next financial year.In this curcumstance how we consider the annual turnover & profit of the works contractors. kindly suggest me with illustrations.

harish n p c

harish n p c (Querist)

03 December 2011 Dear Experts,
How to declare the turnover for the works contractors? They are mainly executed the works of PWD.& other Government departments. the completion of work they were giving a cheque after the deduction of TDS. at the end of the year they give form 16A.& Pending bills are laying with the department.they are giving next financial year.In this curcumstance how we consider the annual turnover & profit of the works contractors. kindly suggest me with illustrations.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

03 August 2025 When it comes to declaring turnover and profit for works contractors—especially those working with PWD or other government departments—there are some key accounting and tax principles to keep in mind. Here’s a detailed explanation with illustrations:

1. Recognition of Turnover (Revenue Recognition)
The turnover should be recognized based on the work completed during the financial year, not only on payments received.

Completed work basis: You recognize revenue based on the value of work certified or completed during the year, irrespective of whether payment has been received or not.

Pending bills: If bills are pending with the department but relate to work done in the current year, the value should still be recognized as turnover.

Cheque received with TDS deduction: The turnover is gross value before TDS deduction (since TDS is just tax withheld, not reducing turnover).

2. Treatment of Pending Bills
If some bills are still pending or will be paid in the next financial year, but relate to work done in the current year, include these amounts in current year turnover.

If work has not yet been done, those pending bills should not be included in the turnover of the current year.

3. Profit Recognition
Profit should be recognized on the basis of the turnover and expenses related to that turnover during the year.

For incomplete contracts, profit can be recognized using the percentage of completion method, based on work certified or physical progress.

4. Example Illustration
Suppose your works contractor did the following during FY 2021-22:

Particulars Amount (Rs.)
Work completed and certified 50,00,000
Payment received (after TDS 10%) 45,00,000
Pending bills for work completed 5,00,000
Work not yet started or incomplete 2,00,000 (to be done next year)

Turnover for FY 2021-22 = Work completed and certified = Rs. 50,00,000

Payment received and TDS deducted (Rs. 45,00,000) is not relevant for turnover figure.

Pending bills related to work completed (Rs. 5,00,000) are included as turnover.

The Rs. 2,00,000 work not started is excluded.

5. Tax Filing Implications
Report the turnover as above in the income tax return for the respective financial year.

Claim TDS credit as per Form 16A issued by the government department.

Keep track of work-in-progress (WIP) for unbilled work, if any, to properly match revenue and expenses.

Summary
Aspect How to Treat
Turnover Value of work certified/completed, including pending bills related to that work
Payment Received Recognize separately, does not affect turnover
TDS Deducted Deducted from payment; claim as tax credit
Work Not Done Exclude from turnover until completed
Profit Recognition Based on percentage of completion or certified work

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