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A finance analyst at an Indian software product company is booking April invoices. A large enterprise customer has paid a Rs 12 lakh annual subscription invoice in full — the twelve-month service period runs from 1 April to 31 March of the following financial year. The instinct in the ledger is to book Rs 12 lakh of revenue in the month of invoicing and clear the receivable against the collection in the same period. The controller, running the year-end review of the prior financial year alongside the current-month close, flags the entry. Ind AS 115 says the Rs 12 lakh is not April revenue — it is Rs 1 lakh of April revenue plus Rs 11 lakh of contract liability sitting on the balance sheet, drawn down at Rs 1 lakh a month through the following March. The same company is also delivering a construction-progress project with a Rs 30 lakh retention money withhold against defect liability, an FOR-destination consignment that left the factory on 30 March but is in transit at year-end, and a Rs 5 lakh customer advance received against a six-month engagement that has not yet commenced. The seven-question test for when to book each of these to the revenue line runs across the five-step Ind AS 115 model, the point-in-time versus over-time paragraph-35 versus paragraph-38 test, the variable-consideration constraint under paragraphs 50 to 58, and the Section 145(2) read with ICDS-IV tax-side timing that will drive the deferred tax entry under Ind AS 12.
Ind AS 115 (notified March 2018, effective for annual reporting periods beginning 1 April 2018, replacing Ind AS 18 and Ind AS 11) governs books-side revenue recognition for entities under the Ind AS framework. The five-step model — identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations, recognise revenue when (or as) the entity satisfies a performance obligation — decomposes every revenue transaction. Paragraph 35 governs over-time recognition where the customer simultaneously receives and consumes the benefits (a subscription or continuous service), the entity's performance creates or enhances an asset the customer controls (a construction or infrastructure contract on customer-owned land), or the entity's performance does not create an asset with alternative use and the entity has an enforceable right to payment (a customised software build). Paragraph 38 governs point-in-time recognition against five indicators — present right to payment, legal title, physical possession, significant risks and rewards, customer acceptance. Paragraphs 50 to 58 govern variable consideration (rebates, retention money, performance bonuses) with the highly-probable-no-significant-reversal constraint. Paragraph 106 defines the contract liability that holds an advance receipt off the revenue line. Section 145(2) of the Income-tax Act 1961 empowers ICDS notification; ICDS-IV governs revenue recognition on the tax side with a percentage-completion method for services (with a 90-day-contract exception) that does not always match Ind AS 115 timing, giving rise to deferred tax under Ind AS 12. Section 13 CGST governs GST time-of-supply, which is a third distinct timing that the year-end GSTR-9 reconciliation reads against the books. Section 43CA anchors the immovable-property side of the tax computation for a real estate developer running in parallel to the Ind AS 115 books-side treatment.
A revenue-recognition working paper against every material contract that documents the Step 1 to Step 5 walkthrough — contract identification (written contract, purchase order, or master services agreement plus statement of work), performance obligations listed (subscription access, professional services setup, transaction volume commitment, retention-money-linked defect liability), transaction price computed (fixed consideration plus estimated variable consideration net of any constraint), allocation across performance obligations (standalone selling price basis where a bundled contract carries multiple POs), and the point-in-time or over-time timing for each PO with the paragraph-35 or paragraph-38 anchor. A contract-liability ledger that holds every advance receipt and every unearned subscription portion, drawn down against the revenue line month by month. An unbilled-revenue ledger that holds the over-time revenue recognised in advance of invoicing (typical for a percentage-of-completion construction contract or a milestone-billed service contract). A deferred-tax working paper under Ind AS 12 that reconciles the books-versus-ICDS-IV timing difference and computes the deferred tax asset or liability at each reporting date. A March cut-off queue at year-end that documents the shipping terms invoice-by-invoice for every in-transit consignment and applies the paragraph-38 five-indicator test to the year-end classification.
The Rs 12 lakh SaaS subscription is booked as Rs 1 lakh of April revenue and Rs 11 lakh of contract liability, drawn down at Rs 1 lakh a month through March. The Rs 30 lakh construction retention money is included in the transaction price only to the extent the highly-probable test is met — for an established civil-construction firm with a defect-liability recovery history, the full retention attributable to the 45 per cent completion is included; for a first-of-its-kind project the retention is excluded until the underlying uncertainty resolves. The FOR-destination consignment in transit at year-end sits in the year-end inventory of the seller (not in cost of goods sold) and the revenue is recognised in the following year when the goods reach the customer. The Rs 5 lakh advance sits as a contract liability and is drawn down as the six-month engagement performance obligations are satisfied. The deferred tax working paper reconciles the books-versus-ICDS-IV timing differences and produces the Ind AS 12 entry at each reporting date. The GSTR-9 Table 5N reconciliation against the books surfaces the books-versus-GST timing gap explicitly and documents it for the CA-certified GSTR-9C reconciliation statement. The revenue line on the profit-and-loss reflects the earned performance rather than the invoiced amount, the balance sheet carries the correct contract-liability and unbilled-revenue positions, and the year-end audit walk on revenue is a documentation exercise rather than a retrofit.
The annual SaaS invoice for a large enterprise customer landed on 5 April for Rs 12 lakh. The customer paid the full amount upfront the same week. The month-end close is nine days away and the analyst is about to post the ledger entries. The instinct is straightforward — debit bank Rs 12 lakh, credit revenue Rs 12 lakh, close the invoice.
The controller stops the entry. Ind AS 115 says the Rs 12 lakh is not April revenue. It is Rs 1 lakh of April revenue and Rs 11 lakh of contract liability on the balance sheet, drawn down at Rs 1 lakh a month through the following March. The GST on the Rs 12 lakh has already gone out on the April return. The tax books will show something different again. Which timing is right, and why do three separate answers coexist for what looks like the same transaction?
The quick answer
Under Ind AS 115 (Revenue from Contracts with Customers, notified March 2018 and effective for annual reporting periods beginning on or after 1 April 2018), revenue is recognised through a five-step model that ends with the timing question — recognise revenue when (or as) the entity satisfies a performance obligation. A performance obligation is satisfied either over time (paragraph 35) or at a point in time (paragraph 38), and the classification decides whether the Rs 12 lakh subscription is one entry in April or twelve entries across twelve months.
For a subscription service where the customer receives and consumes benefits as the entity performs, the answer is over time — Rs 1 lakh a month across twelve months with the Rs 11 lakh unearned portion sitting as a contract liability. For a goods sale on FOR-basis shipping terms, the answer is point in time — revenue recognised when the goods are placed on the wagon at origin. For a retention-money-withheld construction contract, the answer runs through the variable-consideration constraint under paragraphs 50 to 58. And running alongside all three, the Section 145(2) tax-side timing under ICDS-IV and the Section 13 CGST time-of-supply produce two additional timings that the deferred tax working paper and the GSTR-9 reconciliation have to explain.
Step 1 — identify the contract with a customer
Ind AS 115 defines a contract as an agreement between two or more parties that creates enforceable rights and obligations. The agreement can be written (a signed master services agreement plus a statement of work), oral (a firm purchase order confirmed over a call), or implied by customary business practice. The five identification criteria in paragraph 9 — the parties have approved the contract, the entity can identify each party’s rights, the entity can identify the payment terms, the contract has commercial substance, and collection of consideration is probable — all have to be met.
For the illustrative Rs 12 lakh SaaS subscription, the contract is the signed enterprise agreement plus the annual order form. For a routine goods sale, the contract is the customer’s purchase order plus the seller’s acceptance. For a construction project, the contract is the master services agreement plus the specific work order. The contract identification step is often skipped in the mid-market because it feels administrative — but the March cut-off decision on an in-transit consignment turns on which contract terms govern the shipment, and the retention-money highly-probable test turns on which contract clauses trigger the defect-liability window.
Step 2 — identify the performance obligations
A performance obligation is a promise in a contract to transfer to the customer either a distinct good or service (or a bundle of distinct goods or services) or a series of distinct goods or services that are substantially the same and have the same pattern of transfer.
The illustrative Rs 12 lakh SaaS subscription is a single performance obligation — twelve months of software access, delivered as a series of substantially-the-same monthly service. A Rs 25 lakh enterprise deal bundling twelve months of subscription plus a one-off Rs 3 lakh implementation service is two performance obligations — the recurring subscription and the distinct set-up. A Rs 2 crore construction contract bundling design, procurement, and installation is typically a single performance obligation on the basis that the individual promises are not distinct within the context of the contract (the customer is buying the finished asset, not the design work standalone). The Ind AS 115 revenue reconciliation pillar treats the bundling and unbundling analysis in depth.
Step 3 — determine the transaction price
The transaction price is the amount of consideration the entity expects to be entitled to in exchange for transferring the promised goods or services. Fixed consideration is straightforward — the Rs 12 lakh subscription invoice is Rs 12 lakh. Variable consideration is where the paragraph-50-to-58 constraint kicks in.
Rebates, price concessions, performance bonuses, penalties, and — most commonly in the Indian mid-market — retention money on a construction or infrastructure contract are variable consideration. Under paragraph 56, the entity includes variable consideration in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty resolves. A civil-construction firm with a long defect-liability recovery history on similar contracts meets the highly-probable test; a first-of-its-kind infrastructure project with a technically novel scope typically does not.
Step 4 — allocate the transaction price to the performance obligations
Where a contract carries multiple performance obligations, the transaction price is allocated across the POs on the basis of the relative standalone selling price of each. Standalone selling price is the price at which the entity would sell the good or service separately. Where a standalone price is not directly observable, paragraph 78 permits estimation — the adjusted-market-assessment approach, the expected-cost-plus-margin approach, or the residual approach in narrowly defined circumstances.
For the Rs 25 lakh SaaS-plus-implementation deal, if the subscription list price is Rs 20 lakh and the implementation list price is Rs 5 lakh, the allocation is Rs 20 lakh to subscription and Rs 5 lakh to implementation. If the enterprise-discounted price is Rs 25 lakh in aggregate, the same ratio applies — Rs 20 lakh to the recurring PO and Rs 5 lakh to the implementation PO. The discount is spread proportionally, not weighted onto whichever line is convenient. The SaaS subscription reconciliation walkthrough covers the enterprise-deal allocation logic in detail.
Step 5 — recognise revenue when (or as) the PO is satisfied
This is where the point-in-time versus over-time test lives. Paragraph 35 recognises revenue over time if any one of three criteria is met — the customer simultaneously receives and consumes the benefits as the entity performs; the entity’s performance creates or enhances an asset the customer controls; or the entity’s performance does not create an asset with alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. Paragraph 38 recognises revenue at the point in time the customer obtains control of the promised asset, considering five indicators — present right to payment, legal title, physical possession, significant risks and rewards, customer acceptance.
Illustrative walk-through of the four flagship scenarios in this article:
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The Rs 12 lakh annual SaaS subscription — paragraph 35(a) applies (customer receives and consumes the software access benefit as the entity performs the hosting). Over-time recognition at Rs 1 lakh a month across twelve months. The Rs 11 lakh unearned portion at end-April is a contract liability under paragraph 106.
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The FOR-basis goods shipment leaving the factory on 30 March — paragraph 38 applies. Under FOR (Free On Rail) origin, the legal title and significant risks and rewards pass when the goods are placed on the railway wagon at the origin station, which is 30 March. Revenue is recognised in the current financial year. Under FOR-destination, the same indicators pass only when the goods reach the destination station and are unloaded — the March 30 dispatch is a year-end inventory item and revenue moves to the following year.
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The Rs 2 crore construction contract at 45 per cent completion with Rs 30 lakh retention — paragraph 35(b) or 35(c) applies depending on whether the asset is customer-controlled during construction (typical for building on customer-owned land) or is a customised deliverable with no alternative use (typical for a bespoke infrastructure module). Percentage-of-completion revenue at 45 per cent of the transaction price. The retention portion is either included (highly-probable test met, established firm and standard scope) or excluded (highly-probable test not met, novel project or short recovery history).
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The Rs 5 lakh customer advance received against a six-month engagement — paragraph 106 applies. The Rs 5 lakh is a contract liability on receipt and is drawn down against the revenue line as the six-month performance obligations are satisfied. Booking it as revenue in the month of receipt overstates the current-period revenue by Rs 5 lakh and creates a symmetric reversal problem if the engagement is cancelled or the scope contracts.
The three-way timing gap — books, tax, GST
The books-side timing under Ind AS 115 is one answer. The tax-side timing under Section 145(2) read with the ICDS-IV notification of 29 September 2016 is a second answer. The GST time-of-supply under Section 13 or Section 14 CGST is a third answer. All three can differ on the same underlying transaction.
For the Rs 12 lakh SaaS subscription — books-side revenue is Rs 1 lakh a month over twelve months (Ind AS 115 paragraph 35). Tax-side revenue under ICDS-IV percentage-completion is also broadly Rs 1 lakh a month for a continuously-delivered service (with the 90-day contract exception not relevant here). GST time-of-supply under Section 13 CGST is Rs 12 lakh of taxable value in April — the invoice-date trigger. The books-versus-tax difference produces no timing gap in this case, so no deferred tax entry. The books-versus-GST difference produces an Rs 11 lakh gap at end-April that reduces month by month and closes at the twelve-month mark, and the year-end GSTR-9 versus books reconciliation walkthrough documents the reconciliation logic that surfaces this timing gap on GSTR-9C.
For a construction contract with retention money — the books-side may include the retention portion in the transaction price (highly-probable test met) while the tax-side under ICDS-IV requires the retention to be included in gross revenue at accrual, producing a timing difference. For a real estate developer, the Section 43CA tax-side treatment of immovable-property revenue against stamp-duty value creates a further parallel path. The deferred tax working paper under Ind AS 12 is the reconciliation instrument that carries these differences through the life of the project.
The one to escalate first — advance receipts booked as revenue
Of the seven common errors this walkthrough covers, the single largest driver of a books-side revenue overstatement in the Indian mid-market is the advance receipt booked as revenue in the month of receipt rather than parked as a contract liability under paragraph 106. The deferred revenue reconciliation walkthrough for SaaS is the pillar treatment of the contract-liability ledger — how to structure it, how to age it against the underlying contract term, and how to reconcile it to the revenue line month by month.
The escalation is not chronological — it is structural. If the ledger is not built with a contract-liability line separate from the revenue line, every advance receipt silently distorts the profit-and-loss. The controller review at the year-end close catches it if the reviewer is experienced; the internal audit will catch it in the following cycle; the statutory audit will catch it in Form 3CD; but the working-capital and cash-flow ratios in the interim months are wrong and any interim covenant test or funder update is built on a distorted denominator. The pairing with the is this expense capex or revenue walkthrough is the natural next question when the ledger structure is being redesigned for defensibility rather than convenience.
When the manual working paper stops holding
A small services business with a handful of contracts, mostly time-and-materials billing on delivery, and no material variable consideration or retention exposure, can hold the Ind AS 115 working paper on a single spreadsheet — one contract per row, the five-step decomposition in six columns, the over-time or point-in-time timing in a seventh, and the month-by-month revenue and contract-liability roll-forward in the remaining columns. The controller reviews the sheet at each month-end close and signs off the revenue line.
A mid-market business with a mix of subscription contracts, multi-year enterprise deals with implementation and support bundles, project-based work with milestone billing, hardware sales on FOR-origin and FOR-destination terms across multiple state borders, and a construction leg with retention-money variable consideration, is running a rolling performance-obligation ledger that a spreadsheet cannot hold reliably. The exposure is not a single-contract miss — it is the compounding of misclassified over-time versus point-in-time entries, silently over-recognised advance receipts, and unreconciled books-versus-tax-versus-GST timings into a year-end audit walk that stretches from a documented sign-off into a Table 5N reconciliation scramble.
At that scale, moving the revenue-recognition working paper, the contract-liability ledger, the unbilled-revenue ledger, and the deferred-tax reconciliation onto continuously refreshed detection — where Terra Insight’s reconciliation software for India treats the five-step decomposition and the three-way books-versus-tax-versus-GST timing as first-class monthly outputs — is what keeps the year-end revenue walk inside a two-week window rather than a two-month firefight. Below that scale, the spreadsheet is the right tool, and the discipline of running the five-step model by hand is what builds the reviewer’s judgement for the tipping point when scale demands the shift.
Go deeper
- Ind AS 115 revenue reconciliation for India — the pillar treatment of the five-step model
- SaaS subscription revenue recognition and reconciliation — the enterprise-deal walkthrough
- Deferred revenue reconciliation for SaaS — the contract liability ledger walkthrough
- Why does my GSTR-9 not match my books at year-end — the sibling timing gap
- Is this expense capex or revenue in my books — the sibling classification question
- Reconciliation software for India
Frequently Asked Questions
The annual SaaS invoice is Rs 12 lakh and the customer paid upfront. Why can’t I book Rs 12 lakh of revenue in April?
Because Ind AS 115 paragraph 35(a) recognises revenue over time when the customer simultaneously receives and consumes the benefits of the service as the entity performs — a subscription service is the textbook case. The Rs 12 lakh annual invoice is a Rs 1 lakh-per-month revenue stream across twelve months, and the Rs 11 lakh unearned portion at the end of April sits on the balance sheet as a contract liability (also called deferred revenue). Booking Rs 12 lakh of revenue in April overstates the current-year profit by Rs 11 lakh, misstates the balance sheet by omitting the contract liability, and creates a symmetric Rs 11 lakh reversal problem when the customer churns or downgrades before the twelve months complete. The GST time-of-supply is a separate question — under Section 13 CGST the invoice-date is typically the trigger, so the GST is discharged on Rs 12 lakh in April even though the books-side revenue is Rs 1 lakh. That gap is what the year-end GSTR-9 versus books reconciliation has to explain — and the deferred revenue reconciliation is the working paper that reconciles the two.
The goods left the factory on 30 March under an FOR-basis contract but reached the customer on 3 April. Which financial year does the revenue belong to?
Under Ind AS 115 paragraph 38, revenue on a sale of goods is recognised at the point in time the customer obtains control of the promised asset. The five indicators the paragraph lists — present right to payment, legal title, physical possession, significant risks and rewards, customer acceptance — are read together, and the shipping term is the tie-breaker in most Indian mid-market export and inter-state transactions. Under an FOR (Free On Rail) basis the risks and legal title pass when the goods are placed on the railway wagon at the origin station, which is 30 March in the illustration — revenue belongs to the year ending 31 March. Under an FOR-destination basis, the risks and legal title pass only when the goods reach the destination station and are unloaded, which is 3 April — revenue belongs to the following year. The single line on the purchase order determines the entire year-end cut-off treatment, and the March-shipment queue at every mid-market business needs a control that documents the shipping terms invoice by invoice before the year-end close signs off.
The Ind AS 115 five-step model says one thing. The GST law says another. The income-tax ICDS says a third. Which do I follow?
All three, in parallel, on separate ledger lines. Ind AS 115 governs the books-side revenue recognition for entities on the Ind AS framework — Rs 1 lakh a month for the subscription case. GST time-of-supply under Section 13 or Section 14 CGST governs when the output GST liability arises — typically the invoice date, so Rs 12 lakh of taxable value in April. Section 145(2) read with the ICDS-IV notification governs the tax-side revenue for the computation of Profits and gains — the percentage-completion method for services, which for a subscription tracks broadly the Ind AS 115 over-time recognition. The three timings will differ. The books-versus-tax difference gives rise to a temporary difference under Ind AS 12 and creates a deferred tax asset or liability that closes as the underlying revenue is recognised. The books-versus-GST difference is what the annual GSTR-9 reconciliation Table 5N (outward supplies as per books) and Table 9 (differences reconciled) surface. Building the ledger to hold the three timings on separate contract-liability, unbilled-revenue, and deferred-tax lines from day one is what stops the year-end triangulation from becoming a scramble.
The construction project is 45 per cent complete at year-end. The customer has withheld Rs 30 lakh as retention money against defect liability. Do I book that Rs 30 lakh as revenue?
Only the portion that meets the Ind AS 115 paragraph 56 highly-probable test. Retention money is variable consideration under paragraphs 50 to 58 — the payment is contingent on satisfactory defect-liability performance during the retention period. If the entity has a long track record of substantially recovering retention on similar contracts (typical for an established civil-construction firm on a well-defined scope), the highly-probable threshold is met and the retention portion attributable to the percentage-of-completion is included in the transaction price and recognised. If the recovery history is short, the project is technically complex, or the customer has a pattern of disputing retention releases, the highly-probable test is not met and the retention portion is excluded from the transaction price until the underlying uncertainty is resolved. The percentage-of-completion revenue for the 45 per cent progress is calculated on the net-of-excluded-retention transaction price, not on the gross contract value. Section 43CA on the immovable-property side and Ind AS 115 paragraph 35(c) on the books side (no alternative use plus enforceable right to payment) run in parallel for a real estate developer and the deferred tax working paper reconciles the two through the project life.
The customer has paid an advance of Rs 5 lakh against a project that will run for six months. Do I book Rs 5 lakh of revenue in the month of receipt?
No. An advance receipt is a contract liability under Ind AS 115 paragraph 106 — it is money received (or receivable) before the entity has transferred the promised goods or services to the customer. The Rs 5 lakh sits on the balance sheet as deferred revenue (also called contract liability, or advance from customers depending on the presentation convention adopted) and is drawn down against the revenue line as the performance obligation is satisfied — proportionally over the six months for a service delivered evenly, on completion of a milestone for a milestone-based project, or at the point-in-time of goods delivery for a goods contract with an advance. Booking the advance as revenue is one of the most common errors in the Indian mid-market — it inflates current-year revenue, distorts the gross margin ratio (because the corresponding cost of service delivery will land in future periods), and creates a large reversal problem if the customer cancels or the scope changes. The GST treatment is again separate — Notification 66/2017-Central Tax exempts advances received against a supply of goods from GST time-of-supply, but advances against services attract GST at the time of receipt of the advance under Section 13 CGST.
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
- ▸ Ind AS 115 (Revenue from Contracts with Customers), Companies (Indian Accounting Standards) Rules 2015 — The core principle of this Standard is that an entity shall recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity shall apply the following five steps — Step 1 identify the contract with a customer, Step 2 identify the performance obligations in the contract, Step 3 determine the transaction price, Step 4 allocate the transaction price to the performance obligations in the contract, Step 5 recognise revenue when (or as) the entity satisfies a performance obligation. The Standard was notified by the Ministry of Corporate Affairs in March 2018 through the Companies (Indian Accounting Standards) Amendment Rules 2018 and is effective for annual reporting periods beginning on or after 1 April 2018, replacing Ind AS 18 (Revenue) and Ind AS 11 (Construction Contracts) for entities under the Ind AS framework.
- ▸ Ind AS 115 Paragraphs 35 and 38 — over-time versus point-in-time — Paragraph 35 — an entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met — (a) the customer simultaneously receives and consumes the benefits provided by the entity's performance as the entity performs; (b) the entity's performance creates or enhances an asset that the customer controls as the asset is created or enhanced; (c) the entity's performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. Paragraph 38 — for each performance obligation satisfied at a point in time, an entity shall recognise revenue at the point in time when the customer obtains control of the promised asset, considering indicators including — the entity has a present right to payment; the customer has legal title; the entity has transferred physical possession; the customer has the significant risks and rewards of ownership; the customer has accepted the asset. The five indicators in paragraph 38 are the framework against which every FOB-basis versus FOR-destination shipment is tested.
- ▸ Ind AS 115 Paragraphs 50 to 58 — variable consideration — If the consideration promised in a contract includes a variable amount, an entity shall estimate the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer. An amount of consideration can vary because of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties, or other similar items. An entity shall estimate an amount of variable consideration by using either of the following methods — the expected value (the sum of probability-weighted amounts in a range of possible consideration amounts) or the most likely amount (the single most likely amount in a range of possible consideration amounts). An entity shall include in the transaction price some or all of an amount of variable consideration estimated only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Retention money withheld against a construction or infrastructure contract is a common variable-consideration item in the Indian mid-market — the retention is contingent on defect-liability completion and cannot be recognised in revenue until the highly-probable test is met.
- ▸ Section 145(2), Income-tax Act 1961 read with ICDS-IV (Revenue Recognition) notification of 29 September 2016 — Section 145(2) empowers the Central Government to notify Income Computation and Disclosure Standards (ICDS) to be followed by any class of assessees or in respect of any class of income for the purpose of computing income under the head Profits and gains of business or profession or Income from other sources. ICDS-IV governs Revenue Recognition and requires revenue from the sale of goods to be recognised when the seller has transferred the property in the goods to the buyer for a price, or all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership. Revenue from service transactions is recognised by the percentage-completion method — with a specific exception for service contracts of duration not exceeding 90 days, where the completed-service-contract method is permitted. The ICDS-IV timing rules do not always match the Ind AS 115 five-step model — the resulting timing differences between books-side revenue and tax-side revenue give rise to deferred tax under Ind AS 12.
- ▸ Section 43CA, Income-tax Act 1961 — Where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer. Section 43CA is the immovable-property-specific timing and valuation anchor on the tax side for a real estate developer — the Ind AS 115 revenue recognition on the same project follows the paragraph-35(c) over-time criterion (no alternative use plus enforceable right to payment) and the two paths produce timing and quantum differences that the deferred tax working paper has to reconcile through the life of the project.
- ▸ Section 13 and Section 14, Central Goods and Services Tax Act 2017 — Section 13 determines the time of supply of services — the earlier of the date of issue of invoice by the supplier (if issued within the prescribed period under Section 31) or the date of receipt of payment. Section 14 addresses the time of supply where there is a change in rate of tax. The GST time-of-supply is a distinct legal test from the Ind AS 115 books-side recognition and from the Section 145 read with ICDS-IV tax-side recognition — a service invoiced in April but consumed by the customer over twelve months has GST time-of-supply in April (invoice-date basis under Section 13), books-side revenue recognised over twelve months under Ind AS 115 paragraph 35, and tax-side revenue also recognised over twelve months under ICDS-IV percentage-completion. The three-way gap is what the year-end GSTR-9 reconciliation surfaces if the ledger is not built to hold the three timings separately.