Whether GST shall be included while Computing turnover in sec 44AD/ 44ADA ?

1. This question is often raised so as to arrive at the amount on which income may be offered for taxation on a presumptive basis u/s 44AD or 44ADA.

2. Let us try to know about it.

3. First of all, Section 145A provides for the inclusion of taxes, cess, etc. in the value of sale, purchase, and inventory.

4. However, this inclusion is limited to the calculation of income taxable under the head ‘Profits and Gains from Business or Profession’.

5. Does the question arise as to whether this provision can be applied to calculate ‘sales turnover’ for Section 44ADand Section 44ADA?

6. This is a matter of divergent opinion and litigation.

7. If an assessee has opted for Composition Scheme under the GST Act and tax is not recovered from the customer and is debited to the statement of profit & loss as an indirect expense then the amount of GST paid by an assessee does not form part of his gross turnover.

In the 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 should not be included in the definition of the “turnover or gross receipts” for the following reasons:

(a) Section 145A 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 the 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, as presumptive income would be computed on the component of GST which is never treated as income of the assessee.

However, the possibility of other views cannot be ruled out. It would be better if the CBDT clarifies its stand on this matter.