Treatment of income tax provision

This query is : Resolved

narender arengi (Querist)
Follow

20 September 2014 Dear sir What is the income tax provision treatment in
following three cases
1.individual
2.firms
3.companies

Yogesh Shukla

Yogesh Shukla (Expert)
Follow

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

Income tax account Debit
Bank account Credit

Online classes for CA CS CMA