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?
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Taxes on Advance Payment
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No, as per accrual concept, income would be taxed in the year it is earned.
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?
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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