Treatment of Unbilled Revenue

[Tushar Malik]

What is Unbilled Revenue?

Unbilled Revenue refers to income that a business has earned through the delivery of goods or rendering of services, but for which the invoice has not yet been issued as of the reporting date (e.g., financial year-end). This scenario commonly arises in cases such as:

• Long-term or ongoing service contracts
• Milestone-based or phase-wise project execution
• Period-end accruals and adjustments

It is a fundamental element under the accrual basis of accounting, where income is recognized when earned, even if the corresponding invoice has not yet been issued or payment has not been received.

Accounting Treatment

In accordance with accounting standards and principles:

• Unbilled Revenue is recorded as a Current Asset on the Balance Sheet
• Simultaneously, it is recognized as Revenue in the Profit and Loss account

This reflects the entity's legal right to receive payment for services already rendered or goods delivered.

Why Is It Important to Track Unbilled Revenue?

1. GAAP/Ind AS/IFRS Compliance – Revenue must be recognized when earned.
2. Accurate Financial Performance – It impacts reported income and profitability.
3. Prevents Revenue Leakage – Helps avoid missing invoices or underreporting revenue.

Example:
A software firm completes a portion of a project worth ₹5,00,000 by 31st March 2025, but the contract terms require the invoice to be raised on 10th April 2025.

• The revenue will still be recorded in FY 2024–25
• The amount will be shown as “Unbilled Revenue” under current assets in the balance sheet as on 31st March 2025

Disclosure in Notes to Accounts / Audit Report

“The company has recognized unbilled revenue of ₹____ as of 31st March 20XX relating to services performed but not invoiced. This amount is classified as a current asset and has been considered as taxable income under Section 145 of the Income Tax Act. GST has not been discharged on this revenue, as the time of supply under Section 13 of the CGST Act has not yet been triggered.”

Taxability under the Income Tax Act, 1961

General Rule:

As per Section 145 of the Income Tax Act, income is taxable on a mercantile (accrual) basis, unless the assessee opts for the cash basis of accounting.

• Unbilled revenue becomes taxable in the year in which it is earned, even if it has not been invoiced or received.
• It is treated as business income, since it is credited to the Profit and Loss account.

Key Considerations:

• If the assessee follows the cash basis, unbilled revenue is not taxable until the actual receipt.
• For mercantile assessees, non-disclosure of such income may attract scrutiny or additions during assessment.

GST Applicability – CGST Act, 2017

GST is not triggered by revenue recognition alone. Instead, it depends on the “time of supply” provisions.

Section 13 – Time of Supply of Services

The time of supply is earliest of the following:

1. Date of invoice, or
2. Date of receipt of payment, or
3. Date of service completion (if the invoice is not issued within 30 days of service completion)

Common Scenarios Under GST for Unbilled Revenue

• If a service has been rendered but the invoice has not yet been issued, and the period of 30 days has not lapsed, then no GST is payable at that stage.
• If the invoice is not issued even after 30 days from the date of completion of service, then the time of supply is triggered, and GST becomes payable based on the date of service completion.
• In case an advance is received from the customer before the actual service is provided, then GST is payable immediately on the advance, as per Section 13.
• For incomplete services or work-in-progress, where the performance obligation is not yet fulfilled, and no invoice or advance is involved, GST is not applicable until the time of supply is triggered.

GST Return Reporting (GSTR-3B / GSTR-1 / GSTR-9)

• Unbilled Revenue is not required to be shown in GST returns unless the time of supply has been triggered.
• Once the invoice is raised or advance is received, the corresponding turnover should be reported in the relevant month’s GSTR-1 and GSTR-3B.
• In GSTR-9 (Annual Return), unbilled revenue needs to be reconciled only if it affects the reported taxable turnover.