Financial year has ended but yet due to COVID some accounting entries may be pending.Today we are covering important entries covering accounting for income tax provision, TDS and Advance tax. These are entries relating to income tax.
Accounting for Income tax provision
Accounting for Income tax provision
1) Accounting entries relating to TDS
TDS may be deducted in many incomes like commission,interest or any other incomes. Below we have shown accounting entry for TDS deducted on bank interest as example.
TDS receivable A/c DR
Bank A/c DR
To Interest Received A/c CR
TDS and advance tax account should be shown in asset side of the balance sheet under other assets. Amount of TDS and advance tax should be more than provision of income tax.
2) Accounting entries relating to Advance tax
Below we have shown accounting entry for payment of advance tax or for self assessment tax.
Income Tax advance A/c DR
To Bank A/c CR
3)Accounting for Income tax provision
This provision is after making necessary adjustment for depreciation, i.e after arriving at taxable income.On this taxable profit provision for income tax is made.
Below we have shown accounting entry for income tax provision:
P&L A/c DR
To Income Tax Provision A/c CR
Income tax provision A/c will be shown under other liabilities of the capital and liabilities side.
Below we have discussed various other income tax related entries.
Entry for making additional provision for income tax if tax calculated in return is more than provision for income tax.
Income Tax provision for previous(earlier) years A/c DR
To Provision for Income Tax A/c CR
Entry for reversing additional provision for income tax if tax calculated in return is less than provision for income tax.
Provision for Income Tax A/c DR
To Income Tax provision for previous(earlier) years A/c CR
Entries at the time of Income Tax refund/Demand
If income tax return processed without any demand or dis allowances.
Following will be accounting entry:
Income tax provision A/c DR
To TDS receivable A/c CR
To Advance paid Income tax A/c CR
If income tax return processed by raising demand,disallowing expenses, mistake in computation or due to any other reason entries will be as follows:
If Tax paid by cheque:
Income Tax Paid for previous(earlier) years A/c DR (P&L A/c)
To Bank A/c CR
If adjusted from refund of another assessment years,accounting entry will be as follow:
Income Tax Paid for previous(earlier) years A/c DR (P&L A/c)
To Advance paid Income Tax A/c
If interest is received with refund (Interest is taxable)
If Refund is less than expected,accounting entry will be as below:
Income Tax provision for previous(earlier) years A/c DR
Provision for Income Tax A/c DR
Bank A/c DR
Advance paid Income tax A/c DR
To TDS receivable A/c CR
To Advance paid Income tax A/c CR
To Income tax interest refund A/c CR
If Refund is more than expected,accounting entry will be as below:
Important note: This does not lead to legal advice or legal opinion and is personal view and for information purpose only. It is prepared on the basis of facts available and applicable law.It is suggested to go through applicable provisions of law,latest regulations,judicial announcements, circulars, notifications and clarifications etc before taking any action based on above content.You agree here by that for any action taken on basis of above information in any manner writer or K M GATECHA & CO LLP is not responsible or liable for any omission,reliability,accuracy,completeness,errors or authenticity.This work by professional is just for knowledge purpose and does not constitute any kind of solicitation of work or advertisement.
