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Income tax entry

Nisha Yadav (Accounts exe) (455 Points)

16 March 2013

Dear All,

I am much confused about income tax journal entry. In pvt ltd company for f.y 2011-12

Taxable income is Rs. 749965 so income tax is - Rs 231679

But TDS is -Rs 721972/-

So Refund is Rs. 490290/-

Now i how can i make journal entry for it.

Thanks

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6 Replies

HARISH BANSAL (student) (229 Points)
Replied 16 March 2013

1. P&L A/c Dr.231679

To Prov for tax 231679

2. TDS A/c Dr.721972

To Client 721972(name of the person who deducted TDS )

3. Prov for Tax A/c Dr.231679

To TDS 231679

And finally when you will receive te refund, then

4. Bank A/c Dr.490290

To TDS 490290

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Hanish Chaudhary (Chartered Accountant) (333 Points)
Replied 16 March 2013

@ Nisha Yadav

I suggest the following to my clients. I know it may not suit to the requirement of public sector enterprises or even large scale pvt. ltd. co., but it works fine for me and my clients

1. on last date of accounitng year i.e 31.03.2012 in your question

Profit & Loss A/c Dr. 231679

Provision for Taxes 231679

The debit amount in above entry would be reflected in statement of profit & loss and its resultant balance after other adjustment shall be carried forward to Balance Sheet. The provision for taxes shall be reflected under "Short Term provisions" in Current liabilities. The Tax Deducted at source (TDS) under the head current assets.

2. On the date of Tax Audit or finalization of Income Tax Return

Provsion for taxes Dr. 231679

TDS 231679

Hence the provision for tax account will reflect nil balance and TDS account will reflect the balance amounting to Rs.490290/- amounitng to the Income Tax Refundable.

Some minor adjustment like shortfall of provision (if any), or the amount of interest payable will be adjusted from profit & loss account itself i.e the surplus in statement of Profit & loss. The interest can also be booked as expense and later on disallowed at the time of computation of income tax.

Please also suggest other accounting treatment, if any.

Nisha Yadav (Accounts exe) (455 Points)
Replied 17 March 2013

But we didn't make any provision.. ND profit rs 721072/- carried to resrve and surplus... Now if i make any provision than I have to debit p&l account with rs 231679.. After that profit would be reduced by same amount .. Now wht to do.. Please make clear..:(

Hanish Chaudhary (Chartered Accountant) (333 Points)
Replied 17 March 2013

@ Nisha Yadav

I think you had carried forward the last year profit to "Profit & Loss account" opened under the head "Reserve & Surplus" i.e it represents the undistributed profits of the company. You can now debit the provision amount to that "Profit & loss Account".

In this case, you current year profits will not be effected and the provision would be automatically be deducted from reserve and surplus head. Later on, you can adjust the TDS and make an asset for Income Tax Refundable.

Nisha Yadav (Accounts exe) (455 Points)
Replied 17 March 2013

we carried Fy 11-12 profit to resrve n surplus.. ND tax also for 11-12 ... So please clarify me.. This year when we will show last year resrve n surplus In blance sheet.. Than wht would be balance of resrve n surplus???? N please clear me one thing.... Income tax provision will be effect FY 11-12 profit or FY 12-13.. Many thanks

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Hanish Chaudhary (Chartered Accountant) (333 Points)
Replied 19 March 2013

@ Nisha Yadav

(Sorry for delay reply)

1. In my opinion, it should effect last year profit.

2. For reserve & surplus, show the opening balance as per balance sheet and then deduct the provision amount as an item on appropriation of profits in notes to account.