February 4, 2024

Net revenue

Business / /

Net Profit Margin (also known as “Profit Margin” or “Net Profit Margin Ratio”) is a financial ratio used to calculate the percentage of profit a company produces from its total revenue. It measures the amount of net profit a company obtains per dollar of revenue gained. The net profit margin is equal to net profit (also known as net income) divided by total revenue, expressed as a percentage. What is Net Revenue? The Net Revenue is the gross revenue earned by a company after adjusting for customer returns, incentive discounts, and sales allowances. Net revenue is the revenue a company earns in a given period after any purchaser discounts or allowances are factored. Many businesses use purchase discounts to encourage customers to buy their products or services, especially in the retail and wholesale sectors. In addition, they use purchase allowances to encourage buyers (who purchase on credit) to pay their balances sooner—for example, they receive a 2% discount for paying a bill in 10 days instead of 30. When a company provides a discount or an allowance to a customer it appears on a company’s income statement as a reduction to revenue. This means the net revenue figure is the “true” revenue for the specified period. How to Calculate Net Revenue The starting line item on the income statement is revenue (i.e. the “top line”), which measures the total monetary value of the goods and services sold by a company in a specified period. The “Net Revenue” line item can be presented on the income statement in various forms, such as: Revenue, net Sales, net Just as a brief review of accrual accounting, the revenue recognition principle states that sales must be recognized once “earned”, rather than after the customer’s cash payment is received. Under accrual accounting, net revenue is recognized once “earned”, i.e. the good or service has been delivered to the customer, and compensation is expected as part of the transaction. Accrual Accounting → Therefore, even if a company has yet to receive cash payment for goods or services already provided, the revenue is still recorded on the income statement, with the unmet credit sale recorded as accounts receivable on the balance sheet. Cash-Basis Accounting → In contrast, revenue is not recognized under cash basis accounting until the company has received the actual cash payments from the customer. Under the reporting policies established under accrual accounting, revenue must be recognized in the period it was earned, whether cash was received. Net Revenue Formula The net revenue formula subtracts customer returns, discounts, and sales allowances from gross revenue. Net Revenue = Gross Revenue – Returns – Discounts – Sales Allowances If applicable to the scenario, another adjustment factor to gross revenue is allowances, which are closely related to discounts. But discounts are discretionary decisions set by the company, while a reduction in allowances is caused by an event, such as a customer receiving a defective item or mistake, i.e. a compromise reached between the buyer and seller. How to Forecast Net Revenue The formula for projecting net revenue can be specific to the company (and industry), but the most common approach is the “Price x Quantity” method. Revenue = Price × Quantity Price → The price metric can represent the average selling price (ASP), average order value (AOV), and average revenue per account (ARPA), among various types. Quantity → The quantity metric, on the other hand, can represent the number of orders placed, gross merchandise volume (GMV), active user count, and more. Upon projecting a company’s gross revenue, adjustments can be made to account for the fact that there are also returns and discounts. However, the assumptions are often made implicitly (i.e. as a projected percentage of gross revenue), rather than projecting out returns and discounts individually. Gross vs. Net Revenue: What is the Difference? The distinction between net revenue and gross revenue is that the latter is not adjusted for customer returns (i.e. refunds) and discounts offered as an incentive for customers to purchase the products/services. Gross Revenue → The gross revenue will therefore be greater than net revenue, assuming there are returns and discounts to consider, i.e. both are downward adjustments to a company’s revenue. Net Revenue → Since net revenue takes into account returns and discounts, it is typically viewed as a more accurate measure of a company’s sales performance, as well as the quality of its offering mix, pricing strategy, and volume of repeat purchases from customers. However, gross revenue can be more indicative of a “pure” growth metric. Net Revenue Calculation Example Suppose a retail company had 100k product orders in the past fiscal year, 2023. If the average order value (AOV) of the company’s product line is $20.00, the company’s gross revenue is $2 million. Average Order Value (AOV) = $20.00 × 100,000 = $2 million From our gross revenue, we must now deduct the returns from customers, as well as the discounts offered by the company. We’ll assume that 5.0% of the total quantity was returned by customers. Returns (% of Quantity) = 5.0% Total Order Returns = 5,000 (5.0% × 100,000) Moreover, a 10% discount was offered to certain customers, which 20% of the total orders used. Discount (% of AOV) = 10.0% Discounted Orders (% of Quantity) = 20.0% Since we now have all the necessary assumptions, we can return to our net revenue build. The dollar value adjustment for returns is $100,000, which we calculated by multiplying the number of returns by the average order value (AOV). Returns = 5,000 × $20.00 = $100,000 Next, the dollar value adjustment stemming from the discounts to customers is equal to the discount value multiplied by the number of orders placed at the 10% discount. Discounts = (10.0% × $20.00) × (20.0% × 100,000) = $40,000 Using the figures we calculated, we can adjust the gross revenue amount by the returns and discounts to reach a net revenue of $1.86 million. Net Revenue = $2 million – $100k – $40k = $1.86 million FAQs Why is net revenue important? Net revenue provides a more accurate representation of a company’s financial health as it reflects the actual money retained by the business after accounting for various deductions. Is net revenue the

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Pradhan Mantri Gramin Digital Saksharta Abhiyan (PMGDISHA)

Government Schemes / /

The Pradhan Mantri Gramin Digital Saksharta Abhiyan (PMGDISHA) benefits about six crore households, making them digitally literate. With PMGDISHA, most rural households would benefit and enhance their livelihood. This scheme helps the Digitally illiterate people to actively learn IT skills, which will help them participate in the democratic and developmental process. This initiative is part of the Digital India programme which aims to transform India into a digitally empowered society and knowledge economy. Pradhan Mantri Gramin Digital Saksharta Abhiyaan (PMGDISHA) is a Digital Literacy Scheme by the Ministry of Electronics and Information Technology (MeitY), to make six crore persons in rural areas, across States/UTs, are digitally literate, reaching around 40% of rural households by covering one member from every eligible household.   Eligibility The scheme applies only to the rural areas of the country. The eligibility for a household is that none of the members of the household is digital literates. The household comprises the head of the family, spouse, children and parents. Entry criteria The eligible age group for the scheme would be from 14 years to 60 years old people. The beneficiary under this scheme should be digitally illiterate. Only one person from a household would be considered for training under the scheme. Priority would be given to college dropouts, non-smartphone users, antyodaya households and the participants of the adult literacy mission. School students from classes 9th to 12th who are digitally illiterate, are provided with the facility, but IT training is not available in the schools. Preferences would be given to SC/ST, BPL, women, differently able people, and other minorities. The scheme portal would make available the identification of beneficiaries that shall be carried out by Common Service Centres CSC- SPV through collaborations with e-Governance Society in each district, block development officers, and gram panchayats. Implementing Agencies The scheme will be under the direct supervision of the Ministry of Electronics and IT with designated agencies in the States and Union Territories, which includes the State Implementing Agency, District e-Governance Society (DeGS) etc. Financial Assistance On successful certification of candidates trained by the training partner, a training fee of Rs.300 per candidate is payable directly to the training partner through CSC. Based on the outcomes achieved, the training partners will be receiving the payment. Input from the DeGS is necessary for the same. This can include making digital payments, opening a digital locker, sending e-mail, booking tickets etc. The registered certifying agency will be paid Rs.70 per candidate as certification cost/examination fee for the assessment and certifications. For monitoring of the scheme and meeting the overhead cost, the states and union territories will receive an average of Rs.2 per candidate. Training Process The training period is a minimum of 10 days and a maximum of 30 days during which the course has to be completed. The duration of the training is 20 hours, that has to be completed within the training period. Outcomes of the Training Effective communication through technology. The basics of digital devices, including the terminology, navigation and functionality, will be understood. The digital devices are used effectively to create, manage, access, and store information. Effective usage of the Internet to browse in a responsible manner. Learning the usage and carrying out cashless transactions. Usage of digital locker uses online citizen-centric services. Using digital technology in everyday life, at work and in social life and appreciating its role. Training Partners- The Scheme anticipates affiliations with organizations like NGOs/Corporates who desire to provide digital literacy training as Training partners, which is subject to meeting prescribed norms. The norms are as follows: The training partner who desires to provide digital literacy training must be in a registered Indian institution in the field of education/IT literacy for at least more than 3 years. The training partner must have a Permanent Income Tax account number (PAN), audited statements of accounts for at least past three years. Registration under any act of law in India is a must for the institution/organization. Well-Documented processes and procedures covering the course of education and IT literacy training must be defined clearly by the training partner. Role of a Training Partner The beneficiaries would be trained by the training partners who will be responsible for having or appointing training centers in the identified blocks, districts and gram panchayats. All training centers must uphold the PMGDISHA requirements, and the training partner will be responsible for the same. The overall working of the training center and the monitoring of the same will be the responsibility of the training partner. Every center under the purview of the training partner will be accountable Outcomes of PMGDISHA Digital literacy is a set of competencies an individual or a community possess involving the effective use of digital knowledge in daily life situations which will also improve their livelihood. A person trained under this program would be able to operate computers, send/receive emails, undertake cashless transactions, search for information, access Government Services etc. and hence use the ability in the process of nation-building and contributing to the nation’s economic growth. Practice area’s of B K Goyal & Co LLP Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Penalty Notice u/s 271(1)(c) | Income Tax Notice u/s 142(1) | Income Tax Notice u/s 144 |Income Tax Notice u/s 148 | Income Tax Demand

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Section 50C of the Income Tax Act, 1961

Income Tax / /

Section 50C is applicable only to land or building or both. Section 50C uses value adopted by the Stamp Valuation Authority (SVA) for the purpose of levying stamp duty on registration of properties, as guidance value to determine undervaluation of land or building if any in the sale agreement. As per section 50C, the calculation of capital gain of the sale of land or building or both is held as a capital asset. Further, this Section is not applicable in the case of land or building or both are held as stock. This present blog pays attention to ‘Section 50C of the Income Tax Act,1961’. Capital Gain Capital gains are income on the sale of any wealth in the hands of the seller. A capital asset includes various assets including real estate. So, any gain on the sale of land or building by the owner is taxable as a capital gain. Sale consideration reduced by the cost of acquisition (cost of acquisition for land or building held for more than 24 months) is taxable as a capital gain. As per the Income Tax Act, capital gains tax in India must not be paid in case of the individual inherits the property and there is no sale. Though, if the person who has inherited the property decides to sell it, the tax will have to be paid on the income that has been generated from the sale. These are some examples of capital assets jewellery, trademarks, patents, vehicles, machinery, leasehold rights, house property, buildings, and land. Section 50C of the Income Tax Act, 1961 Section 50C talks about the calculation of capital gain of the sale of land or building or both which is held as a capital asset. According to this section, the cost of sale consideration should not be less than the stamp duty cost which is assessed by the Stamp Valuation Authority. Nevertheless, a Marginal relief of 10% difference is allowed by the income tax department. Further, this Section is not applicable in the case of land or building or both are held as stock. In case of a sale, consideration received or claimed to be received by the seller on the sale of land or building or both is less than the cost adopted by stamp valuation authority, such cost adopted by SVA would become actual sale consideration received or increasing to the seller. Consequently, capital gain would be Valuation according to stamp valuation specialists reduced by the cost of acquisition. Calculation of Capital Gain under Section 50C of the Income Tax Act, 1961 The following table shows the way to calculate the Capital Gain under the section 50 C of the income tax act, of 1961: Particular amount The full value of consideration: Sale value or stamp duty value (Higher)     … Less: Expenditure about the transfer     … Net Consideration     … Less: Cost of Acquisition     … Less: Cost of Improvement     … Capital Gain/loss     …   But, where the Stamp duty value is a maximum of 110% of consideration, then those sale considerations shall be treated as Full Value of Consideration Conditions for Applicability under Section 50C It is held on capital asset There is a transfer of land or building or both Whether it is Long Term Capital Asset or Short Term Capital Asset The asset can be depreciable or non-depreciable. What is Stamp Duty? Stamp duty value means any value adopted by any authority of the Central or State Government for the determination of payment of stamp duty for the immovable property. Under section 50C​​, while calculating capital gain ascending on the transfer of land or building or both, if the actual sale consideration of such land and/or building is less than the stamp duty value, then the stamp duty value will be taken as the full value of consideration. Calculation of Stamp Duty under section 50C of the Income Tax Act, 1961 The stamp duty value is calculated by the Stamp Valuation Authority. Conversely, the stamp duty on the date of the agreement may be different from the stamp duty value on the date of registration. Following are the 2 possible scenarios in this case: Take the stamp duty value on the date of the agreement: Fully or partially of consideration has been known before the date of the agreement and; Payment should be made through account payee cheque/draft or as per prescribed electronic mode. Take stamp duty value on the date of registration Particulars Situation 1 Situation 2 Situation 3 Stamp duty value on the date of Agreement     … … … Stamp duty value on the date of Registration     … … … Payment of consideration     … … … Mode of payment     … … … Stamp Duty value for Section 50C     … … … There can be different honest reasons among the parties for having a transaction of sale of land or building for a consideration lower than the cost agreed by the Stamp Valuation Authority. Section 50C of the income tax Act provides protection only against variability in the cost of the property caused due to a considerable gap between different stages of the transaction of sale. Further, there have been many litigations in the past where the value of the asset on the date of agreement to sell and actual sale varies due to economic aspects such as demand and supply. What Happens If the Selling Price Is Lower Than the Value Adopted by SVA? While there can be varied genuine reasons between the parties for having transaction of sale of land or building for a consideration lower than the value adopted by SVA, Section 50C provides safeguard only against fluctuation in the value of property caused due to considerable gap between different stages of transaction of sale. To explain this further, there have been litigations in the past in cases where the value of the asset on the date of agreement to sell and actual sale differs

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