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Understanding Turnover for Income Tax

Meaning of Sales, Turnover and Gross Receipts

The Income-tax Act does not define “sales,” “turnover,” or “gross receipts.” Their meaning is derived from commercial principles and ICAI Guidance Note on Tax Audit.

  • Sales: Value of goods sold, net of returns, discounts, and excluding GST or other taxes collected for the Government.
  • Turnover: Total value of sales or services during the year. It may also include other incidental receipts integral to business.
  • Gross Receipts: Wider term – includes all receipts from business or profession such as sales, service charges, job work, labour charges, etc.

Important Rule: Taxes collected (GST, VAT, excise duty, etc.) if credited separately and remitted to Government are not turnover.

Who needs to worry about turnover for tax audit or 44AD?

  • Business persons: Tax audit is required if turnover is above ₹1 crore, or up to ₹10 crore where cash transactions are less than 5%.
  • Professionals: Audit is required if receipts cross ₹50 lakh (limit increased to ₹75 lakh where cash ≤ 5%).
  • Eligible businesses under Section 44AD: From AY 2024‑25, turnover limit is ₹3 crore (if cash receipts ≤ 5%). Earlier it was ₹2 crore.

So, clearly calculating turnover correctly is critical for knowing whether you can opt for presumptive taxation or whether you need a compulsory audit.

 

Commission Agents and Consignment Transactions

A common issue arises: Should sales made through a commission agent/consignee be counted as their turnover?

  • If ownership and risks remain with the principal:
    • Commission agent is only a facilitator.
    • Turnover = Commission received.
    • The sales proceeds belong to the principal, not the agent.
  • If ownership/risk passes to the commission agent or consignee:
    • Sales proceeds form part of their turnover.

📌CBDT Circular No. 452 (17-03-1986):

  • For commission agents, arhatias, etc., only commission income is turnover, not the entire sale value.

Turnover in Share Trading, Securities and Derivatives

Speculative Transactions (Section 43(5))

  • Defined as contracts for purchase/sale of stocks, shares, or commodities settled otherwise than by actual delivery.
  • Turnover = Aggregate of favourable and unfavourable differences.

Example:

  • Profit in Trade 1 = ₹80,000
  • Loss in Trade 2 = ₹40,000
  • Turnover = ₹1,20,000 (80,000 + 40,000).

Futures & Options (F&O) and Other Derivatives

Transactions settled without actual delivery. ICAI’s Guidance Note prescribes:

  1. Total of positive and negative differences = turnover.
  2. Premium on sale of options = included in turnover.
    • But if net profit already includes premium, don’t add separately.
  3. Reverse trades: Differences must be included.
  4. Open positions at year-end: Count turnover in the year of squaring off.
  5. Delivery-based settlement in derivatives:
    • Turnover = Difference between trade price & settlement price.
    • If underlying asset held as stock-in-trade, then entire sale value = turnover.

Example:

  • Profit from F&O contracts = ₹1,50,000
  • Loss from F&O contracts = ₹90,000
  • Premium from selling options = ₹60,000
  • Turnover = ₹3,00,000 (1,50,000 + 90,000 + 60,000).

Delivery‑Based Share Trading

  • In delivery trades, entire sale value is counted as turnover (not just profit).
  • Example: Buy at ₹5 lakh, sell at ₹6 lakh → Turnover = ₹6 lakh.

 

Section 44AD is designed to simplify taxation for small businesses. But the very first step is computing turnover in the correct way. Whether you are a shop owner, trader, or even a stock market participant, knowing what counts as turnover ensures compliance and helps you choose the right tax scheme.

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