TaxTMI 
TaxTMI 
I have raised a bill of 10 Lakh and submitted to client this year. If client approves it at reduced value of 5 lakh in next year. What are the considerations to this effect towards profit/loss?
Approval of Invoice at a reduced value
23 Dec 2009 
2 Replies 
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Accounting regime determines whether reduced invoice settlements are taxed on receipt or on accrual, affecting relief options.
Tax treatment depends on the accounting regime and contractual accruals: under a cash basis, only receipts are taxable; under a mercantile (accrual) basis, accrued fees are taxable. If an amount previously accrued and taxed is later settled at a lower value, the shortfall may be treated as a discount, bad debt, or business loss depending on facts, accounting policy and prior treatment. Options include revising returns within the revision period or claiming relief consistent with accounting treatment. (AI Summary)
Tax treatment depends on the accounting regime and contractual accruals: under a cash basis, only receipts are taxable; under a mercantile (accrual) basis, accrued fees are taxable. If an amount previously accrued and taxed is later settled at a lower value, the shortfall may be treated as a discount, bad debt, or business loss depending on facts, accounting policy and prior treatment. Options include revising returns within the revision period or claiming relief consistent with accounting treatment. (AI Summary)