provision for income tax

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Meenakshi (Querist)
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11 May 2011 i want entry for provision for income tax & deffered tax till assessment year with some example. in a simple language. i am so much confused. pls tell me from starting means advance tax.

Nayan Das

Nayan Das (Expert)
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12 May 2011 profit & loss a/c......Dr.
To,Provision for Income tax a/c...Cr.

profit & loss a/c......Dr.
To,Defferred tax liablity a/c..Cr.

CA Chandra Kishore Bajpai

CA Chandra Kishore Bajpai (Expert)
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13 May 2011 I got one article, pls go through it, I think it will help you:-

In India , we all company pay income tax of previous year income . Means what we earn in last year we have to pay tax on next year that is called assessment year. But Under the law of Income tax , all company have to pay tax in advance .
So without actual earning we starts to estimate earning .

For Example
Suppose company can guess that it will earn Rs. 5 crore in this year .
So on this advance guess company make his reserve or provision of income , it may be the 5% or 10% or 15% or 30% on his estimated income. This is called provision for income tax .
Now company Make the voucher entry of this provision by providing amount from profit and loss account:-
1. Profit and loss account Debit
To Provision for income tax account Credit
After provision or estimated income tax , company submit his advance income tax return to income tax department ,then pass the following entry
2. Advance Income tax account debit
To Bank Account credit
After one year when income tax department calculate the real income tax by providing the real income position of company in previous year .
You will remember following point

Adjustment of actual income tax with provision
Actual income tax will adjust with provision of income tax by passing following adjustment entry
3. Provision for income tax account Debit
To Income tax Account ( Actual after assessment ) credit

We must calculate the difference between actual paid tax and ( advance + tds )
If advance and tds is more than actual tax , then income tax department return your excess tax paid
At this time two general entries will pass
1st transfer advance tax and tds to income tax account
Income tax account debit
Advance tax account Credit
Tds account Credit
2nd journal entry will pass for return the amount
Bank account debit
Income tax account credit
If advance and tds is less than actual tax , then income tax department demand more tax from you , and you will pay by following journal entry
1st transfer advance tax and tds to income tax account
Income tax account debit
Advance tax account Credit
Tds account Credit
2nd journal entry will pass for return the amount

Income tax account Debit
Bank account Credit

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