Accounting of Income tax of a sole proprietor
This query is : Resolved
31 March 2021
I am a Chartered accountant, first 6 months i was employed and was earning salary and next 6 months I was into practice and hence earning professional income.
my questions is how should I treat accounting of the tax liability in tally/books.
one ITR will be filed with both salary and professional income and one final tax amount will be computed but should i show this tax amount in my professional accounts or personal account? since i need to adjust TDS also while paying these taxes and in my professional account/tally only TDS on professional income is booked where as TDS on salary income is reflecting in my personal books.
P.S. i keep two books in tally - for my individual firm and my personal finances.
kindly guide.
thanks
my questions is how should I treat accounting of the tax liability in tally/books.
one ITR will be filed with both salary and professional income and one final tax amount will be computed but should i show this tax amount in my professional accounts or personal account? since i need to adjust TDS also while paying these taxes and in my professional account/tally only TDS on professional income is booked where as TDS on salary income is reflecting in my personal books.
P.S. i keep two books in tally - for my individual firm and my personal finances.
kindly guide.
thanks
31 March 2021
1) You may integrate salary income into the books that you maintain with regard to professional income
2) You may also bring in to the books the transactions from your savings account (in which salary income was credited).
I think this would help integrate different sources of income in to one account.
Alternatively, if you wish to continue maintaining separate accounts, you need to manually integrate income from various sources in the ITR form, which is generally not recommended, as it is time consuming. Further, reconciliation of books with ITR would also be a challenging task.
2) You may also bring in to the books the transactions from your savings account (in which salary income was credited).
I think this would help integrate different sources of income in to one account.
Alternatively, if you wish to continue maintaining separate accounts, you need to manually integrate income from various sources in the ITR form, which is generally not recommended, as it is time consuming. Further, reconciliation of books with ITR would also be a challenging task.
31 March 2021
some issues if I integrate both personal and professional accounts:
1. how would i show my flat purchased on my personal name and not firm names in tally?
2. I only need to show professional balance sheet while filling ITR 4 and not personal right?
3. how to show all personal fixed assets i have on my own name as i can claim dep only on firm's fixed assets right?
1. how would i show my flat purchased on my personal name and not firm names in tally?
2. I only need to show professional balance sheet while filling ITR 4 and not personal right?
3. how to show all personal fixed assets i have on my own name as i can claim dep only on firm's fixed assets right?
31 March 2021
1) No need to show purchase of flat because it is personal in nature
2) Yes, just integrate salary/interest income to arrive at gross total income
3) Yes, depreciation can be claimed only on assets used in practice of profession. On other assets, if personal in nature, depreciation cannot be claimed.
2) Yes, just integrate salary/interest income to arrive at gross total income
3) Yes, depreciation can be claimed only on assets used in practice of profession. On other assets, if personal in nature, depreciation cannot be claimed.
31 March 2021
if i merge both personal and professional bank accounts and i have purchased house from personal bank then i need to show house in tally right?
in point 3, yes dep will be claimed on professional assets, but then how i should show personal assets in tally?
also if i have integrated both personal and professional accounts then how i should show my balance sheet in ITR 4 under PGBP head?
in point 3, yes dep will be claimed on professional assets, but then how i should show personal assets in tally?
also if i have integrated both personal and professional accounts then how i should show my balance sheet in ITR 4 under PGBP head?
31 March 2021
1) When you merge your personal bank account, debit withdrawals to drawings account, credit of salary under the income from salary, credit interest on SB account under IFOS etc. Basically all transactions which are personal in nature (routed through savings account) can find its place in drawings account.
2) Why do you even want to show fixed assets (personal) in Tally? You can't claim depreciation on the same so no need to bring the same in to the books. Assume, you just have salary income, in that case, do you show your personal assets in the ITR? No right? Very similar even here.
3) What I meant is, not to integrate entire personal accounts in to professional accounts. You need to consider merging only such transactions which are taxable under IT Act. The idea is bring all the taxable incomes under a single book of accounts, in order to compute taxable income.
2) Why do you even want to show fixed assets (personal) in Tally? You can't claim depreciation on the same so no need to bring the same in to the books. Assume, you just have salary income, in that case, do you show your personal assets in the ITR? No right? Very similar even here.
3) What I meant is, not to integrate entire personal accounts in to professional accounts. You need to consider merging only such transactions which are taxable under IT Act. The idea is bring all the taxable incomes under a single book of accounts, in order to compute taxable income.
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01 April 2021
It was healthy discussion from both side.
I want to summarize with points.
1. First you have to decide whether you want to maintain personal account and business account combined then you can do in one company.
2. personal assets and business assets both can be capitalized but depreciation can be claimed only on business assets.
3. In ITR you need to fill P&L & BS data which you can show as combined of personal and business but things should be clear is P&L need to have on business component.
4. If you don't want to use or maintain personal accounts and personal assets in your company then there are not any restriction on it. whenever any transaction relates to your income or expense you can book in your balance sheet as well as in your ITR.
I suggest, you have to maintain personal and professional account in one company in view to have better understanding of your transaction and for easy ITR filing.
I want to summarize with points.
1. First you have to decide whether you want to maintain personal account and business account combined then you can do in one company.
2. personal assets and business assets both can be capitalized but depreciation can be claimed only on business assets.
3. In ITR you need to fill P&L & BS data which you can show as combined of personal and business but things should be clear is P&L need to have on business component.
4. If you don't want to use or maintain personal accounts and personal assets in your company then there are not any restriction on it. whenever any transaction relates to your income or expense you can book in your balance sheet as well as in your ITR.
I suggest, you have to maintain personal and professional account in one company in view to have better understanding of your transaction and for easy ITR filing.
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01 April 2021
thanks, helpful
appreciate if you can share some sample balance sheet & P&L in excel format for the same.
appreciate if you can share some sample balance sheet & P&L in excel format for the same.
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