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05 December, 2012

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IND AS Read With Point of Taxation Rules – A Big Disarray!!

Point of Taxation Rules, 2011

As per Point of Taxation Rules, 2011, ‘point of taxation’ shall be the time when the invoice for the service provided or to be provided is issued. This is the general Rule. Although it is be understood that where the invoice is not issued within 30 days from completion of service the point of taxation shall be the date of completion of provision of the service.

In a case, where the person providing the service, receives a payment before the time specified above, point of taxation shall be when he receives such payment, to the extent of such payment.

In general as per point of taxation, the recognizing event for tax leviable service income shall be date of Invoice.

IND AS-18 (Revenue Recognition)

As per Para 20 & 21,

Rendering of services
20. When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction shall be recognised by reference to the stage of completion of the transaction at the end of the reporting period. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied:
    (a)  the amount of revenue can be measured reliably;
    (b)  it is probable that the economic benefits associated with the transaction will flow to the entity;
    (c)  the stage of completion of the transaction at the end of the reporting period can be measured reliably; and
    (d)  the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.
21. The recognition of revenue by reference to the stage of completion of a transaction is often referred to as the percentage of completion method. Under this method, revenue is recognised in the accounting periods in which the services are rendered. The recognition of revenue on this basis provides useful information on the extent of service activity and performance during a period. Ind AS 11 also requires the recognition of revenue on this basis. The requirements of that Standard are generally applicable to the recognition of revenue and the associated expenses for a transaction involving the rendering of services.

Thus IND AS 18 requires the revenue of service to be recognised based on completion of Service.

Mismatch Analysis & Its Impact

Mismatch:- On one hand where, As per POT Rules,2011 any invoice raised shall decide the taxability of service tax (generally), On the other hand, that same invoice might not be recognised as revenue in financial statements in terms of completion of service principle of IND AS 18 which might be after the cut-off date.  

Impact of Mismatch: Revenue authorities generally use financial statements for governance purposes including identification of tax evasion cases. In cases where there might not be any concurrence between the services incomes reported as per financial statements and as disclosed in ST-3 returns, it shall be tedious job for the revenue.

About the Author:
Author is practicing Chartered Accountant in New Delhi and specializing in Indirect Taxes, Corporate Laws and Management Advisory. He can be reached at +91-9811653975 or

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