20 September 2014
Provision for Income-tax is made based on estimation and accordingly Advance Tax would have been paid. `Provision for Income-Tax` would appear in Current liabilities
Accounts can be adjusted once the tax is assessed and the return is filed. If the provision made in the books is lesser, additional tax liability will be booked as expenditure and if the Advance Tax paid is more than the provision, the excess paid will continue to be shown under current Assets till the receipt of refund.
Now In Case of Company or Corporate I am giving you full detail of accounting treatment , if you have to do this type of work in any company .
Ist Step Understanding the meaning of Company . I have already read on it see . 2nd Step Understanding the meaning of provision of Income tax
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 Profit and loss account Debit 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 Advance Income tax account debit 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 Provision for income tax account Debit 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
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