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Provision for it

Mohammed Shahid Rahman (Partner) (143 Points)

01 December 2017

Hello In our Balance Sheet (Partnership Firm) for year ending 16-17, we mentioned Provision for Income Tax 16-17 as : 10,833.86,

and advance tax paid was 22,000/-.

IT return was submitted first week of August 17 after paying self assessment of 14440/-

Now I am doing entry in tally today, how will I do the above entries?

I got the order last week with a refund of Rs.3/-

They have charged interest of 686/-

Please help. Thanks

Read more at: https://www.caclubindia.com/experts/provision-for-it-2605234.asp

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15 Replies

NISHA AGARWAL (Chartered Accountant) (454 Points)
Replied 01 December 2017

the interest charged is to be shown as an expense and the refund or payment in excess of the provision, advance tax and self assessment tax is to be added or reduced from the P/L considering tax related to prior years.

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Mohammed Shahid Rahman (Partner) (143 Points)
Replied 01 December 2017

Thanks for the reply Nis.

An entry with dr and cr wud be very helpful. I hv joined office and learning things.

Is it correct?
Refund - Indirect income
Interest - Indirect income

NISHA AGARWAL (Chartered Accountant) (454 Points)
Replied 02 December 2017

interest on IT refund is indirect income.. and the IT Refund is the excess prov for tax that was reduced in the previous FY. So it is an adjustment and not indirect income

Mohammed Shahid Rahman (Partner) (143 Points)
Replied 02 December 2017

Hi Nisha

Thanks for the reply.

So IT refund will come which head?

Secondly provision for IT was say for example 10000 but after computation it was 14000 so what be the entry for this excess 4000 and which head it will come?

NISHA AGARWAL (Chartered Accountant) (454 Points)
Replied 04 December 2017

u need not create any head for Income Tax Refund. The provision for I.Tax, Advance Tax, TDS for relevant year,, these aal shall be set off against each other,, and the excess or shortage if any shall be treated. this excess or shortage is tax related to prior years which may be created under indirect expenses head. from the presentation point of view,, treat it after charging current tax, defferd tax, MAT credit, if any.

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Mohammed Shahid Rahman (Partner) (143 Points)
Replied 08 December 2017

Thanks for the help Nisha. I really appreciate it.

Regards

satish (teaching) (2046 Points)
Replied 15 December 2017

Particulars	Rs.
Advance tax	22000
Self assessment tax	14440
Total Tax paid	36440
Less: Refund	3
Tax Liability including Interest	36437
Less: Interest	686
Tax liability	35751
Less: Opening Provision	10833.86
Provision is to be create out of current year	24917.14

1. Profit and loss A/c Dr. 24,917.14

To Provision for tax 24,917.14

2. Provision for tax a/c Dr. 35,751

To Tax liability a/c 35,751

3. Tax Liability a/c Dr. 22,000

To Advance Tax A/c 22,000

4. Tax Liability a/c Dr. 13,751

Interest on IT Dr. 686

IT refund (A.Y 2017-18) Dr. 3

To Bank A/c 14,440

5. Bank A/c Dr. 3

To IT refund (A.Y 2017-18) 3

2 Like

Mohammed Shahid Rahman (Partner) (143 Points)
Replied 16 December 2017

Hello Satish

Thank you so much for the wonderful reply.

I really appreciate your help in this concern, however,
as I have less knowledge of accountancy and I am still learning it, i need to know
whether I have understood your answer or not. Below I have
mentioned the heads under which these ledgers will go in Tally:

Provision for tax - Indirect Expenses
Provision for Tax a/c - Provisions
Tax Liability - Duties & Taxes
Advance tax A/c - Loands & Advances (Asset)
Interest on IT - Indirect Expenses
IT Refund (AY 2017-18) - Capital

I have not receievd the refund yet. SO i gues wil put
it under asset, so the last entry would be:

Refund Receivable Dr. 3
To IT refund (A.Y 2017-18) 3

Pls suggest.

I have one more query which I will post one this one is thru.

satish (teaching) (2046 Points)
Replied 16 December 2017

Every thing is ok. but Prov. for Taxation - Provisions

If IT Refund Not received please ignore entry no 5.

Mohammed Shahid Rahman (Partner) (143 Points)
Replied 18 December 2017

Thank yo so much for the help Satish.

You have been very helpful.

I have one more query which I will post soon.

Regards

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Mohammed Shahid Rahman (Partner) (143 Points)
Replied 05 February 2018

Hello Satish Ji and other members

In the FY 15-16 I outsourced my accounting and got y Balance Sheet, Profit & Loss statement. As I was very late on submitting the ITR, I did not check it. Based on FY15-16 I prepared FY16-17 and submitted that too.

Yesterday I was going through books and found that the person prepared wrong Outstanding data in the FY15-16.

This is what he showed:

Oustanding for 15-16 (Wrong)
O/S Wages	25643
O/s Salary	8200
O/S Professional Charges	5000
O/S Electricity Charges	950
O/S Telephone Expenses	1486
Arrear Rent	6568
O/S Legal Charges	10000
	57847

This is what should have been shown:

Oustanding for 15-16 (Correct)
O/S Wages	25400
O/s Salary	8200
O/S Professional Charges	5000
O/S Electricity Charges	950
O/S Telephone Expenses	1486
Arrear Rent	19700
O/S Legal Charges	10000
O/S Subscripttion	4200
	74936