How Section 24 Works in Practice

Let’s say:

You sell a machine for R300,000 (incl. VAT) on credit.
The buyer pays you over 36 months.
You deliver the machine in Year 1.

🔹 Without Section 24:

SARS would expect you to declare the full R300,000 as income in Year 1, even if you’ve only received part of it.

🔹 With Section 24:

You can spread the taxable income over the 3 years, based on when you receive the instalments.

This improves cash flow and matches tax obligations to actual receipts.

🧾 Accounting Entries Overview (Simplified)

When using Section 24, your accounting system should:

At the time of sale:

Debit: Debtors / Instalment Sales Receivable
Credit: Deferred Revenue (Section 24)
Credit: VAT Output

As payments are received:

Debit: Bank
Credit: Debtors
Debit: Deferred Revenue
Credit: Sales / Income

This ensures your taxable income reflects the actual instalments received, not the total sale upfront.

⚖️ Legal and Practical Considerations

Section 24 only applies to income from the sale of movable goods, not services or rentals.
The agreement must transfer ownership and not just the right of use (i.e., it’s not a lease).
VAT must still be accounted for upfront on the full selling price (because VAT operates on the invoice basis).

⚠️ Common Pitfalls

Mistake	Risk
Not applying Section 24 where it qualifies	Paying more tax upfront than needed
Applying it to non-qualifying transactions	SARS disallowing the deduction
Failing to reverse deferred income as instalments are received	Understated income (risk in audit)
Not recognising VAT upfront	VAT penalties from SARS

✅ Final Thoughts

Section 24 is a useful tool to manage cash flow and tax liability on credit sales of goods. It ensures businesses don’t pay tax on money they haven’t received yet — but must be applied carefully and correctly.

👋 Need Help Applying Section 24?

At Prosperity Accounting and Bookkeeping Solutions, we can: