As22
This query is : Resolved
09 March 2013
HOW TO MAKE PROVISION FOR CURRENT TAX.ASSESSMENT YEAR 12-13
09 March 2013
Dr to Profit and Loss account and credit to PROVISION FOR I TAX 2013-14.
14 July 2024
Making provisions for current tax in accordance with Accounting Standard 22 (AS 22) involves estimating and recording the tax liability that pertains to the current financial year, which in this case is the assessment year 2012-13. Here’s a step-by-step guide on how to make provisions for current tax:
### Steps to Make Provision for Current Tax
1. **Calculate Taxable Income:**
- Determine the taxable income for the financial year ending on March 31, 2012. This involves adjusting accounting profit for tax purposes, considering applicable tax laws and regulations.
2. **Determine Taxable Rate:**
- Identify the applicable tax rates for the assessment year 2012-13. These rates are typically specified by the tax authorities based on the type of entity and its income level.
3. **Calculate Estimated Tax Liability:**
- Multiply the taxable income (step 1) by the applicable tax rate (step 2) to calculate the estimated tax liability for the assessment year 2012-13.
4. **Consider Adjustments and Exemptions:**
- Take into account any adjustments, deductions, exemptions, or tax credits applicable as per the tax laws of the jurisdiction where the entity operates. These may include depreciation, provisions, tax incentives, and other allowable deductions.
5. **Assess Uncertainties and Risks:**
- Evaluate uncertainties related to tax positions, potential disputes with tax authorities, and any contingent liabilities that might affect the final tax liability for the year.
6. **Record Provision for Current Tax:**
- Based on the estimated tax liability calculated in step 3, record a provision for current tax in the books of accounts for the financial year ending on March 31, 2012. This provision represents the amount of tax expense expected to be payable to tax authorities for the assessment year 2012-13.
7. **Disclosures and Notes:**
- Provide appropriate disclosures in the financial statements regarding the provision for current tax, including the basis of calculation, key assumptions used, and any uncertainties or risks associated with the estimation.
### Example Illustration
Assume a company has taxable income of Rs. 1,00,00,000 for the financial year ending March 31, 2012. The applicable tax rate for the assessment year 2012-13 is 30%.
- Taxable Income: Rs. 1,00,00,000
- Tax Rate: 30%
- Estimated Tax Liability: Rs. 30,00,000
Based on this calculation, the company would record a provision for current tax of Rs. 30,00,000 in its books of accounts for the financial year ending March 31, 2012.
### Conclusion
Making provisions for current tax under AS 22 involves estimating the tax liability based on taxable income and applicable tax rates for the relevant assessment year. It’s essential to follow the accounting standards and ensure proper disclosures in the financial statements to provide transparency and clarity to stakeholders regarding the company’s tax obligations. Always consult with tax professionals or refer to the latest tax laws and regulations for accurate computation and reporting of current tax provisions.
### Steps to Make Provision for Current Tax
1. **Calculate Taxable Income:**
- Determine the taxable income for the financial year ending on March 31, 2012. This involves adjusting accounting profit for tax purposes, considering applicable tax laws and regulations.
2. **Determine Taxable Rate:**
- Identify the applicable tax rates for the assessment year 2012-13. These rates are typically specified by the tax authorities based on the type of entity and its income level.
3. **Calculate Estimated Tax Liability:**
- Multiply the taxable income (step 1) by the applicable tax rate (step 2) to calculate the estimated tax liability for the assessment year 2012-13.
4. **Consider Adjustments and Exemptions:**
- Take into account any adjustments, deductions, exemptions, or tax credits applicable as per the tax laws of the jurisdiction where the entity operates. These may include depreciation, provisions, tax incentives, and other allowable deductions.
5. **Assess Uncertainties and Risks:**
- Evaluate uncertainties related to tax positions, potential disputes with tax authorities, and any contingent liabilities that might affect the final tax liability for the year.
6. **Record Provision for Current Tax:**
- Based on the estimated tax liability calculated in step 3, record a provision for current tax in the books of accounts for the financial year ending on March 31, 2012. This provision represents the amount of tax expense expected to be payable to tax authorities for the assessment year 2012-13.
7. **Disclosures and Notes:**
- Provide appropriate disclosures in the financial statements regarding the provision for current tax, including the basis of calculation, key assumptions used, and any uncertainties or risks associated with the estimation.
### Example Illustration
Assume a company has taxable income of Rs. 1,00,00,000 for the financial year ending March 31, 2012. The applicable tax rate for the assessment year 2012-13 is 30%.
- Taxable Income: Rs. 1,00,00,000
- Tax Rate: 30%
- Estimated Tax Liability: Rs. 30,00,000
Based on this calculation, the company would record a provision for current tax of Rs. 30,00,000 in its books of accounts for the financial year ending March 31, 2012.
### Conclusion
Making provisions for current tax under AS 22 involves estimating the tax liability based on taxable income and applicable tax rates for the relevant assessment year. It’s essential to follow the accounting standards and ensure proper disclosures in the financial statements to provide transparency and clarity to stakeholders regarding the company’s tax obligations. Always consult with tax professionals or refer to the latest tax laws and regulations for accurate computation and reporting of current tax provisions.
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