Sales Turnover or Gross Receipts

Introduction

"Sale turnover" shall be aggregate of amount for which sales are affected by an enterprise and ‘Gross receipts’ shall include all receipts arising from carrying on a profession. While determining the value of sales turnover or gross receipts, certain receipts shall be excluded and included.

1. About

Income-tax Act contains various provisions which have a reference to sales turnover or gross receipts of an assessee. The quantum of sales turnover or gross receipts from a business or profession is pertinent to determine the eligibility of an assessee for presumptive tax scheme or to determine the obligation of assessee to maintain books of accounts under Section 62 or to get them audited under Section 63, etc. Inspite of immense significance of these terms, the Income-tax Act doesn’t define them.

Consequently, these term can be interpreted with reference to guidance available in other Acts or regulations or guidance notes. Thus, the guidance note issued by the ICAI can be referred to for determining the meaning of these terms.

2. Sales Turnover for the purpose of Tax Audit

As per "Guidance Note on Terms Used in Financial Statement" published by the ICAI, the meaning of term "sale turnover" shall be aggregate of amount for which sales are affected by an enterprise. The terms gross turnover and net turnover are sometimes used to differentiate the turnover before and after deduction of returns and discounts.

2.1. Inclusions and Exclusions

An invoice may involve various extra and ancillary charges. Some of these charges may form part of the sale turnover whereas some may be excluded while determining the value of sales turnover. The treatment thereof are as follows.

2.1-1. Discounts

Discount can be allowed in various forms such as upfront discount, cash discount, turnover discount, etc. In general, discount allowed in the sale invoice itself shall be excluded from the sales turnover.

Cash discount, which are allowable on early payments, are in nature of a financing charge which has no relation with the turnover. Thus, it should not be excluded while computing the turnover.

Turnover discount, commonly known as trade discount, is a discount linked with the quantity. Such discount is allowed when sales made to a customer exceeds the prescribed quantity. Since this discount is dependent on the turnover it should be deducted from the figure of turnover even if it is allowed through separate credit notes.

2.1-2. Rebates

Rebate can be allowed in form of trade discount or commission. Special rebate in the nature of trade discount can be deducted from the turnover. However, if it is in the nature of commission on sales it will form part of the turnover.

2.1-3. Sales return

Value of the goods returned should be deducted from the value of turnover. Such deduction shall be made even if such return are from the sales which were made in the earlier years.

2.1-4. Fixed assets or investments

Any proceeds arising from sale of fixed assets shall not form part of turnover as fixed assets are not held for the purpose of resale. Similarly proceeds arising from sale of any property held as investment will not form part of turnover.

However, if property, shares, securities, debentures, etc., are held as stock-in-trade, then it will form part of turnover of the assessee

In case of an assessee who has opted for Composition Scheme under GST Act, the tax is not to be recovered from the customer and it is debited to the Statement of profit & loss as an indirect expense. Thus, amount of GST paid by an assessee should not form part of his gross turnover. In case of other assessees, as GST is charged from the customer and it is recognized separately in the books of accounts, it is not clear whether the amount of GST shall be included in the turnover for the purpose of calculation of taxable income only (as provided by Section 277) or for every other provision which has a reference to "turnover". Unless the CBDT clarifies its stand on this matter, it would be appropriate to ignore the amount of GST while calculating the gross turnover or gross receipts because of following reasons:

(a) Section 277 begins with ‘for the purpose of determining the income chargeable under the head Profits and gains of business or profession’ which makes this provision inapplicable for other purposes.

(b) If GST recovered from customer is credited to Current Liability Accounts (Output CGST or Output IGST or Output SGST) and payments to the authority are also debited to the said separate account, these should not form part of turnover shown in profit and loss account. ICAI’s Guidance Note on Tax Audit also confirms that if tax recovered is credited to a separate account, they would not be included in the turnover.

(c) Inclusion of GST in the turnover would have the cascading effect, i.e., presumptive income shall also be computed on the component of GST which is never treated as income of the assessee.

2.2. Treatment in special cases

2.2-1. In case of commission agents

Turnover of a commission agent or a person selling goods on consignment basis is determined with reference to the transfer of significant risk or reward of ownership. If property in goods or all significant risks and rewards of ownership of goods continue to belong to the principal, the relevant sale price shall not form part of turnover of commission agent. In this case, the turnover shall be the amount of commission earned by the agent. However, if property in the goods, significant risk and reward of ownership belongs to the commission agent, the sale price received/receivable shall form part of his turnover.

ICDS-IV (Revenue Recognition) also provides that in case of agency relationship, the revenue of an agent shall be the amount of commission and not the gross inflow of cash, receivables or other consideration. The CBDT

2.2-2. In case of share brokers

When a share broker purchase securities on behalf of his customers, he does not get them transferred in his own name but they are delivered in the name of customer. The same is true in case of sales also. The share broker holds the delivery merely on behalf of his customer. The property in securities does not get transferred to the share brokers. Only brokerage which is being accounted for in the books of account of share brokers should be taken into account for calculating the value of turnover. However, in case of transactions entered into by share broker on his personal account, the sale value should also be taken into account while calculating the sales turnover. The case of a sub-broker is not different from that of a share broker.

2.2-3. In case of speculative transaction

A speculative transaction means a transaction in which a contract for purchase or sale of any commodity or securities, is periodically or ultimately settled otherwise than by the actual delivery or transfer of commodity or scrips. Thus, in speculative transactions there can be both positive and negative differences arising by settlement of contracts. Each transaction resulting into whether a positive or negative difference is an independent transaction. In such transactions though the contract notes are issued for full value of the purchased or sold asset, the entries in the books of account are made only for the differences. Accordingly, the aggregate of both positive and negative differences is to be considered as the turnover.

Example, Mr. X is an assessee engaged in speculative business. He derives following profits or losses while dealing in securities:

While computing the turnover of Mr. X, all the difference whether positive or negative shall be aggregated.

2.2-4. In case of derivative transactions

The derivative transactions are completed without delivery of shares or securities or commodities etc., and they are squared up by receipts/payments of differences. A derivatives transaction has all feature which a speculative transaction has, but it is not considered speculative.

The turnover in such types of transactions is to be determined as follows:

(a) In case of squared off transactions, total of favourable and unfavourable differences shall be taken as turnover.

(b) Premium received on the sale of options is also to be included in turnover. However, where the premium received is included for determining net profit for transactions, the same should not be separately included.

(c) In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.

(d) In case of an open position as at the end of the financial year (i.e., trades which are not squared off during the same financial year), the turnover arising from the said transaction should be considered in the financial year when the transaction has been actually squared off.

(e) In case of delivery based settlement in a derivatives transaction, the difference between the trade price and the settlement price shall be considered as turnover. Further, in the hands of the transferor of underlying asset, the entire sale value shall also be considered as business turnover where the underlying asset is held as stock in trade.

For example, Mr. A enters into the following transaction during the tax year 2026-27:

2.2-5. In case of delivery based transaction

Delivery based transactions are those transactions under which transactions are completed with actual delivery of stocks and shares, whether intended originally or happened eventually.  While determining the turnover in case of delivery based transactions, the total value of sale shall be considered as the turnover of the assessee.

2.2-6. In case of investment

Where transactions of sale or purchase of securities are for the purposes of investment and income arising therefrom is computed under the head "Capital Gains", then the value of such transaction is not to be included in sales or turnover. However, in case such transactions are in the course of business, then the total of such sales are to be included in the sale turnover or gross receipts, as the case may be.

The CBDT

2.2-7. In case of multiple business

Where an assessee is carrying on more than one business, sale turnover or gross receipts from all businesses shall be clubbed together. However, if assessee is opting for presumptive taxation scheme, turnover of such businesses shall be excluded while determining his total sales turnover or gross receipts.

3. Gross Receipts for the purpose of Tax Audit

The term ‘Gross Receipts’ is not defined in the Income-tax Act. The ‘Guidance Note on Tax Audit’ issued by ICAI provides that in case of professionals ‘Gross receipts’ includes all receipts arising from carrying on a profession. However, there are certain receipts which may or may not be included in the gross receipts, which are as follows.

3.1. Inclusions

Following receipts shall be included in the gross receipts:

(a) Out of pocket expenses, recovered by way of consolidated fees, would form part of gross receipts.

(b) Cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of Government.

(c) Any duty drawback payable to any person against exports under specified schemes.

(d) The aggregate of gross interest income received by a money lender.

(e) Commission, brokerage, service and other incidental charges received in business of chit funds.

(f) Reimbursement of expenses incurred (i.e., packing, forwarding, freight, insurance, travelling, etc.). However, if same is credited to a separate account in books, only net surplus on this account should be added to gross receipt or turnover.

(g) The net exchange rate difference on export sales during the year by applying the same principle as laid down in case of reimbursement of expenses above.

(h) Hire charges of cold storage.

(i) Liquidated damages.

(j) Insurance claims except those which are linked with the fixed assets.

(k) Sale proceeds of scrap, wastage etc. unless treated as part of sale turnover, whether or not credited to miscellaneous income account.

(l) Lease rent in business of operating lease.

(m) Finance income to reimburse and reward the lessor for his investment and services.

(n) Hire charges and instalments received in the course of hire purchase.

(o) Advance received and forfeited from customers.

(p) The value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of a profession.

3.2. Exclusions

Following receipts shall be excluded from the gross receipts:

(a) Out of pocket expenses recovered separately from the client shall not form part of gross receipts.

(b) Where a professional received an advance for services which are yet to be rendered, it will not form part of the gross receipts till the services are rendered.

(c) Sale proceeds of fixed assets including advance forfeited, if any.

(d) Sale proceeds of assets held as investments.

(e) Rental income unless the same is assessable as business income.

(f) Dividends on shares except in the case of an assessee dealing in shares.

(g) Income by way of interest unless assessable as business income.

(h) Reimbursement of customs duty and other charges collected by a clearing agent.

(i) The amount received by travel agents from clients for payment to airlines, railways etc. are excluded if received by way of reimbursement of expenses incurred on behalf of client. If, however, travel agent is conducting a package tour and charges a consolidated sum for transportation, boarding and lodging and other facilities, then the amount received from the members of group tour should form part of gross receipts.

(j) The amount of advertising charges recovered by an advertising agent from his clients by way of reimbursement shall be excluded. However, if he books the advertisement space in bulk and recovers the charges from different clients, the amount recovered by him will form part of his gross receipts.

(k) Share of profit of a partner in total income of the firm shall be excluded from the total income of partner.

(l) Write back of amounts payable to creditors or provisions for expenses or taxes no longer required.

(m) Interest orremuneration received by a partner from the partnership firm

(n) Agriculture receipts [as defined in Section 2(5) read with Schedule II]

4. For Any other purpose

The Income-tax Act, 2025, doesn’t provide any guidance on determination of sale turnover or gross receipts. The Institute of Chartered Accountants of India has issued a guidance note on Tax Audit. This guidance note has prescribed the meaning of these terms for the purpose of Tax Audit only.

Since no guidance is available in this respect under the Act, thus we have to rely on the judicial pronouncements in this regard and in absence of these the reliance will be placed on the ICAI’s guidance note. These judicial pronouncements provides specific treatment in respect of the following:

4.1. Scrap

The sale proceeds arising from the scrap shall not form part of the turnover unless the assessee is engaged in the business of dealing in scrap. The sale proceeds from scrap may either be shown separately in the profit and loss account or may be deducted from the amount spent by the manufacturing unit on the raw material

References

Circular No. 452 dated March 17, 1986

 Circular No.6/2016, dated 29-2-2016

Perizad Zorabian Irani v. PCIT [2022] 139 taxmann.com 164/287 Taxman 406 (Bombay)

CIT- VII, New Delhi v. Punjab Stainless Steel Industries [2014] 46 taxmann.com 68 (SC)

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.