Divya Karthik (S) (459 Points)
23 April 2010Kindly solve my query...
1) Treatment of Income Tax refund during computation along with section.
2) A firm has incurred loss during the the current year. The loss has been divided in the partners capital a/c's. If the loss has not been divided, can it be brought forward to the next year for setting off?
Pls help
Thanx in advance
Dhruv
(Chartered Accountant)
(308 Points)
Replied 23 April 2010
1) Incase of a refund, debit the bank account and credit the profit and loss appropriation account in the year in which the refund is received.
2) It really won't matter the way in which you treat the loss, in case you do carry forward the loss as a debit balance in subsequent years in subsequent years after you set off the loss from the profit the net amount transfered to the capital account will remain the same
The only difference it will make is when you fixed capital accounts and no operation through the current account. In such cases ,not debiting the loss to capital accounts will let their balance remain the same next year and more interest on capital will be debited (incase you are giving interest on capital ) in the next years.
@*CS Siddharth Bumb. *
(B.Com, CA Final, CS )
(5270 Points)
Replied 23 April 2010
Divya Karthik
(S)
(459 Points)
Replied 23 April 2010
If income tax refund is credited in P&L a/c.Should we deduct from the revenue during computation?
Dhruv
(Chartered Accountant)
(308 Points)
Replied 23 April 2010
Boss are you asking from income tax angle or balance sheet angle ? Under income tax the treatment is different ?
Dhruv
(Chartered Accountant)
(308 Points)
Replied 23 April 2010
Technically that is wrong, income tax refund does not form a part of revenue / turnover and showing it in that head is wrong.
Put it in the appropriation account, and it's not taxable as per income tax angle.
And regarding loss c/f, please answer the query in my last post.
Rachit
(Analyst)
(913 Points)
Replied 23 April 2010
When you pay income tax it is not an allowable expenditure under I.Tax Act. Similiarly I. Tax refund is not to be considered as an income. Only interest on I. T.Refund is income chargeable to tax
Profit / Loss from partnership business is always divided amongst the partners in their profit sharing ratio and necessary credit / debit entry is passsed in the partners capital account.
Mere division of loss amongst the partners does not elude the firm from claiming set-off of the same in subsequent year/s. Division of loss amongst the partners is a mere book entry, but from I.Tax angle the same is C/f for set-off
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