If a company charges payment of the next three years in advance to their clients, will they have to pay the tax on the total amount in the current financial year?
CMA Poornima Madhava
(CMA)
(13097 Points)
Replied 03 December 2021
No, as per accrual concept, income would be taxed in the year it is earned.
Rahul
(Business Professional)
(24 Points)
Replied 03 December 2021
So if the company receives Rs. 3 lac in their bank account this financial year from the clients for the next three years contract, then they have to pay taxes on Rs. 1 lac this year, then on Rs. 1 lac second year, and then on Rs. 1 lac in the third year? Or would complete Rs. 3 lac be taxed in this financial year?
CMA Poornima Madhava
(CMA)
(13097 Points)
Replied 03 December 2021
Show 3 lacs as advance received in the books and raise invoice for 1 lac for every year and pay income tax accordingly.
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