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Entry for tax in A/c

Abhay (1) (123 Points)

28 October 2009

In the F.Y. 2008-09 Prov. for Tax is 70000 and Advance Tax paid is 150000. In the Assessment of This Year Gross Liability comes for 275000. Then What will be The A/cing Entry For this Transaction during F.Y.09-10 not at the End of this Year?

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23 Replies

RITESH KOTHARI (B.COM, FCA, DISA(ICAI)) (778 Points)
Replied 28 October 2009

1.PROV FOR TAX 08-09 (INDIRECT EXP.) Dr. 205000

PROV FOR INCOME TAX (CURRENT LIA & PROV.) Cr. 205000

2. PROV FOR INCOME TAX (CURRENT LIA & PROV.) Dr. 150000

ADVANCE TAX Cr. 150000

3. NOW BALANCE OF YOUR ADVANCE TAX A/C WILL BE "NIL"

4. BALANCE OF YOUR PROV FOR AX 08-09 A/c WILL BE EQUAL TO YOUR TAX LIABILITY TO BE PAID AFTER ASSESSMENT.

5. IF ANY INTEREST AND/OR PENALTY IS LEVIED ON THE LIABILITY, OPEN A SEPARATE A/C FOR THAT AND DO ENTRY AS FOLLOWS:

PROV FOR INCOME TAX (CURRENT LIA & PROV.) Dr. 125000

INCOME TAX PENALTY 08-09 (IND. EXP.) Dr. 5000 (SAY)

BANK A/c Cr. 130000

6. ALTHOUGH THE PENALTY ETC WONT BE AN ALLOWED EXPENXE UNDER IT ACT.

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sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 28 October 2009

Provision for Taxation Dr 70000

Income Tax Paid Dr 205000

To Advance Tax cr 150000

TO Bank cr 125000

can any one let me know whether I am right or gone wrong somewhere in this transaction

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 28 October 2009

Ritesh sir my entry is wrong ? can u comment on the same

RITESH KOTHARI (B.COM, FCA, DISA(ICAI)) (778 Points)
Replied 28 October 2009

SIVARAM,

WHAT IS THE HEAD OF INCOME TAX PAID A/C?

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 28 October 2009

Income Tax Paid Account is a short provision for the previous financial year which i say as Income tax paid account that head of account is wrong ? it should be provision for taxation account

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RITESH KOTHARI (B.COM, FCA, DISA(ICAI)) (778 Points)
Replied 28 October 2009

SIVARAM

THAT MEANS PROV FOR TAXATION A/C IS DEBITED WITH 275000/-.

RIGHT?

RITESH KOTHARI (B.COM, FCA, DISA(ICAI)) (778 Points)
Replied 28 October 2009

SIVARAM,

THIS WILL MAKE PROV FOR TAXATION A/C AS REMAINDER WHICH SHUD NOT BE.

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 28 October 2009

understood sir thanks for correcting me

Abhay (1) (123 Points)
Replied 28 October 2009

Ritesh Sir In Ist entry

if prov, for Tax is considered as indirect exp. then it will be trasferred to p&l a/c which will show less profit of c.y.

Abhay (1) (123 Points)
Replied 28 October 2009

Sivaram sir Bal. in Prov for Tax . what will be the treat ment of it?

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RITESH KOTHARI (B.COM, FCA, DISA(ICAI)) (778 Points)
Replied 28 October 2009

ABHAY,

THE PROFIT WILL NOT BE AFFECTED. WHILE CALCULATING PROFIT , IT WILL BE SHOWN BELOW THE LINE AFTER CALCULATING NET PROFIT AS IT IS NOT ALLOWED UNDER IT ACT.

CA NEETHU JOY (Executive KPMG) (52 Points)
Replied 28 October 2009

hi Ritesh

As per ur calculation

Opening Bal in Provision for tax 70000

Transfer in Ist entry 205000

2nd entry (150000)

Net Bal is 125000 which is not equal to the total liability which is Rs 275000/-

Also, till the time the assessment is over we have to maintain the Advance Tax account as well as the provision account (which is normally equal) and is written off only after assessment. Here even the opening balance differs, the reason for which is to be looked into.

Regards

CA Neethu