Amended Definition of TURNOVER u/s 2(91)

Hi Shashwat, here’s a detailed explanation on the amended definition of “Turnover” under Section 2(91) of the Companies Act, 2013 based on your queries:

1. What to include in “Gross Amount of Revenue”? Should tax element be included?

• Turnover means the gross amount of revenue recognized in the Profit & Loss account from sale, supply or distribution of goods or services.

• “Gross” means before any deduction of expenses like GST, sales tax, or discounts.

• However, the tax collected on sales (like GST or VAT) is generally excluded from turnover since this is not revenue earned by the company but collected on behalf of the government.

• Therefore, turnover usually excludes GST and other indirect taxes but includes the value of sales before any deductions for returns, discounts, or allowances.

• The company’s accounting policy and audit standards generally require excluding GST from revenue.

2. Should Other Income be included for computing revenue/turnover?

• No. Other income like interest income, dividend income, profit on sale of assets, or rent income is not part of turnover.

• Turnover refers specifically to revenue from the company’s principal business activities — sale of goods or services.

• Other income is reported separately under “Other Income” in the P&L.

3. Should turnover be computed on Cash basis or Accrual basis?

• As per Accounting Standards and Companies Act, turnover is recognized on accrual basis.

• This means revenue is recognized when goods are sold or services rendered, irrespective of actual receipt of cash.

• So, turnover includes all sales billed during the year, even if payment is yet to be received.

4. Is “Income from Operations” in the Balance Sheet inclusive or exclusive of tax?

• Note: “Income from Operations” is shown in the Profit & Loss Statement (not the Balance Sheet).

• It generally refers to net sales or revenue after adjusting for returns and trade discounts but before deducting indirect taxes like GST or VAT.

• However, in practice, Income from Operations is reported exclusive of GST or sales tax because such taxes are not revenue but liabilities payable to the government.

• So, it excludes taxes collected on behalf of government.

Summary: