provision accounts and book of entry

[Sudhir Kumar]

Can a construction company books revenue on the basis of provisions. If yes what is its impact on billing procedure and GST liability. Whether GSTR-9C and GSTR-9 will be un-reconciled due to provision entry. The basis of a construction company to make accounting on the basis of provisioning entry.

[YAGAY and SUN]

Great question — and one that often trips up businesses in the construction and real estate sector. Let’s break this down step-by-step:

🔹 Can a construction company book revenue on the basis of provisions?

Yes — from an accounting standpoint, a construction company can recognize revenue based on provision (i.e., accrual basis) especially under Percentage of Completion Method (POCM) or as per Ind AS 115.

📌 This is done to match income and expenses in the correct period — even if billing hasn’t occurred yet.

BUT — this is purely for accounting (books of accounts), not for GST.

🔸 What’s the impact on billing and GST liability?

Here’s the key distinction:

Basis	Provision Entry (Books)	GST Liability
Revenue Recognition	Based on stage of completion	Based on time of supply rules
Billing	May not be done yet	No billing = no GST
GST Payment	Not required on provision	Pay only when invoice is raised or payment received

✅ GST is NOT payable merely on provision entries unless an invoice is issued or advance is received.

So, you book revenue in your financials, but you don’t pay GST unless a taxable event happens.

🔍 Will GSTR-9C and GSTR-9 show mismatches due to provision?

Yes, they can show mismatches — and that’s expected.

Here’s Why:

• GSTR-9/GSTR-9C pulls turnover based on actual outward supplies reported in GSTR-1 & 3B.
• Your books may show higher turnover (due to provision entries), which hasn’t yet been billed.

⚠️ This difference will appear in GSTR-9C Reconciliation — typically in Table 5B/5O (reconciliation of turnover).

🛠️ What Should Be Done?

✅ In GSTR-9C:

• Mention the provision-based revenue as a reconciliation item.
• Add a note like:
  "Provision for unbilled revenue as per Percentage of Completion Method (not liable to GST as invoice not yet raised).”

✅ In Books:

• Maintain a clear trail between:
  • Provision entries
  • Actual billing
  • GST invoices

📋 Summary:

Aspect	Provision-based Revenue
Allowed in Books?	✅ Yes (Ind AS 115 / Accrual)
Billing Required?	❌ Not yet
GST Liability?	❌ Not until invoice/advance
GSTR-9 vs Books	🔁 Difference will show — explain in GSTR-9C
Risk of Penalty?	❌ No, if well-documented

[Ryan Vaz]

Yes, a construction company can book revenue on a provision / unbilled basis for accounting and income-tax purposes.

However, GST is NOT payable merely on provisioning entries unless a tax invoice is issued or payment is received.

? Provision entries do not create GST liability by themselves, but they often lead to differences between:

• Books of accounts

• GST returns (GSTR-3B / GSTR-1)

• Annual return & reconciliation (GSTR-9 / 9C)

AI Summary

Construction companies can recognise provisioned revenue under POCM, but GST is due only upon invoicing or receipt.
Construction companies may recognise revenue on a provision or unbilled basis under accrual accounting and the Percentage of Completion Method (Ind AS 115), but GST liability arises only on time of supply when a tax invoice is issued or payment is received; provision entries alone do not create GST liability and will produce reconciling items in GSTR 9/GSTR 9C that must be disclosed and documented.