Gross Receipts: What Is It & How to Calculate

Gross receipts are the total income earned by your business via all its activities before any expenses, costs, or returns are deducted. They give you a raw, unfiltered view of the revenue-generating capacity of your business. A gross receipt is very crucial, as it helps in filing taxes properly, applying for a loan, and analysing the overall financial health of the company. This blog explains what these receipts include, how to calculate them, and their importance.

What Are Gross Receipts?

Gross receipts can be understood as the full amount of money or value a business gets in a certain period. It is the total revenue amount before any deductions are made for any costs or expenses.

Gross receipts cover much more beyond just cash transactions. They also cover:

• Main business activities: Sales of goods and services
• Other income: Interest earned on business accounts, dividends, rent, and commissions
• Barter transactions: The fair market value of property or services received

Example: Suppose a web developer offers services to a marketing company in exchange for advertising. The value of that advertising space is added to the developer’s gross receipts.

Gross Receipts vs. Gross Sales

Gross sales are different from gross receipts, though people often confuse them. The difference is:

• Gross sales: Sales-related income earned only from core business activities; doesn’t include other types of income like dividends, interest, or rental income
• Gross receipts: Contains income from all sources, including gross sales; provides a better insight into the business’s earnings

Also Read: How to Manage Business Loans After You Receive Funding?

How to Determine Your Gross Receipts

Determining your gross receipts happens by summing up all the income-earning activities for the given time period. Ensure you go about it with precision and accuracy for valid results. Here’s the process you can follow:

Step 1: Identify the Time Period

Choose a time period for measuring, such as monthly, quarterly, or annually. The majority of companies use the fiscal year or a certain quarter.

Step 2: Fetch All Income Documents

Before you begin, ensure you keep these latest updated documents handy:

• Sales invoices
• Service contracts
• Bank statements showing interest credits
• Rent agreements (if any of the properties are on lease)
• Commission slips and other income vouchers

Step 3: Calculate Your Inflows

Calculate your income from:

• Sale of goods
• Services rendered
• Interest earned
• Rent, commissions, or any other sources

The figure you end up with should be your gross receipts figure.

Step 4: Double-Checking Inclusions

You should not deduct any expenses at this stage. Gross receipts are always calculated before subtracting:

• Cost of goods sold
• Employee salaries
• Rent or marketing expenses
• Refunds and discounts

Not all inflows count towards gross receipts. Specifically, the following must be excluded:

• Loan amounts, since they are liabilities and must be repaid
• Owner’s capital contributions, as they are investments rather than income
• GST collected, which is owed to the government and not business revenue

Ensure your calculation takes all the above into account. This is the reason the figure is called “gross”; you get to see the total amount of inflows before any kind of adjustment is made.

Also Read: How To Get Small Business Loan Without Collateral in India

The Importance of Gross Receipts

Gross receipts affect taxation, lending, and even financial planning. They are one of the most reliable indicators of how your business is performing.

Business Tax Compliance

Indian legislation identifies gross receipts as the basis for computing income for taxation purposes. To begin with, domestic companies with gross receipts below ₹400 Crores during the previous year have a 25% Income Tax Rate for AY 2025-26. Plus, under Section 44AB of the Income Tax Act, any business with gross receipts exceeding ₹1 Crore has to undergo an audit.

Finally, gross receipts are used to determine eligibility for Section 44 AD - presumptive taxation scheme for businesses. This is often considered to be ‘gross receipt tax’, though India doesn’t have such a concept. Under this section, businesses with gross receipts below ₹2 Crore can disclose taxable income as 8% of their turnover. In addition, if gross receipts received in cash are less than 5% of total receipts and business turnover is below ₹3 Crore, the business can disclose taxable income as 6% of the turnover.

These deductions reduce your tax liability. In this manner, your gross receipts are used to determine eligibility for presumptive taxation schemes and ensure compliance.

Business Loans

When you apply for a Business Loan, lenders will assess your gross receipts; the aim is to examine the overall strength of the cash flow, level of demand for the products and services, and general stability. Steady or growing receipts indicate dependable business income, making it easier for you to access loans.

Business Monitoring

As a business owner, you can benefit from tracking gross receipts, as this process allows for the monitoring of your top-line revenue growth. You’ll be able to identify the most profitable activities, understand seasonal changes and set appropriate growth targets. With such information, a firm can reconsider expansion plans, revise prices, or consider launching new products.

Taxable Income Calculation

For proprietors or business partners who report business income as part of their personal income for taxation, calculating gross receipts is crucial. It helps determine the individual’s taxable income, as they must report all expenses before any deductions.

Additionally, certain professionals can opt for presumptive taxation under Section 44ADA. Among the eligibility conditions is that annual gross receipts cannot exceed ₹50 Lakhs. This is just one use case that requires gross receipts, highlighting its importance for individual taxation.​

Also Read: Top 10 Small Business Ideas Under ₹5 Lakh in India

To Conclude

Having a proper understanding and knowing how to calculate gross receipts is a basic responsibility that falls on you, as a business owner in India. This number is crucial for ensuring tax compliance, conducting a thorough financial analysis, and making informed decisions for your business.

Keeping clear records of your gross receipts makes it easier to manage your business and speeds up the process when you apply for a Business Loan from an NBFC like Poonawalla Fincorp.

Frequently Asked Questions

What is the gross receipts tax in India?

Unlike in the US, there is no specific gross receipts tax in India. Instead, gross receipts are used as part of the taxation process to determine eligibility or requirements as per certain Sections of the Income Tax Act.

Is GST included in gross receipts?

No, GST is a tax and hence is a liability that you owe to the government. Your revenue does not include any GST that has been collected. Your gross receipts must be reported without GST collected from the customers.

Are gross receipts the same as profit?

No, they are not the same. ‘Gross receipts’ refers to all income before any expenses have been deducted, whereas ‘profit’ is what is left after all costs have been covered.

What is the difference between gross receipts and revenue?

Often, these terms are used interchangeably. As a matter of fact, ‘revenue’ is used to mean the proceeds from the main business operation, while ‘gross receipts’ is an all-encompassing term that covers all proceeds.

Would loans be included in gross receipts?

Only the interest paid on loans can be included in gross receipts. Principal amounts cannot be included.

Is barter income included in the calculation of gross receipts?

Yes, barter income is included in gross receipts. If there’s no cash exchange but services or goods are traded, the bartered value of what’s received needs to be factored into gross receipts, as it’s considered income.

What is the tax audit limit based on gross receipts in India?

Tax audits are required if a business’s gross receipts go over ₹1 Crore in a financial year, although the threshold is higher if the majority of transactions are digital.

How do I report gross receipts on my ITR?

Businesses declare gross receipts in the top-line revenue field of the Profit and Loss (P&L) section of their Income Tax Return (ITR) form.

What is the difference between annual and monthly gross receipts?

The difference is in the time frame used. Monthly gross receipts represent the total revenue for a single month, whereas annual gross receipts capture the total revenue over a full financial year.