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Provision for income tax entry for previous year

Rehbar Siamwala (Sr. Executive Taxation) (112 Points)

08 August 2011

Fact of the Case:

1. Entry passed for Income Tax Provision done in 2008-09 for Rs. 200000/-

Income Tax A/C Dr. 200000/-

To Provision for Income Tax Cr. 200000/-

2. Actual Liability arise for Rs. 175000/-, Entry passed in 2009-10

Provision for Income Tax Dr. 175000/-

To Bank Cr. 175000/-

Balance Rs. 25000/- is still standing in Books.

How should i clear the provision amount :-

1. Adjust the amount against Capital account? or

2. Showing it as Prior period item as Income and clear provision amount? or

3. Any other impact can be given? please let me know.

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7 Replies

Vignesh Killur (Articled Assistant) (1666 Points)
Replied 08 August 2011

In my Opinion you can show it as Excess Provision made for Income tax and credit the amount to the Profit & loss A/c of the current year by passing the following entry:

1. Provision for Income Tax FY 08-09

To Excess Provision for Income tax FY 08-09

2. Excess Provision for Income tax FY 08-09

To Profit & Loss a/c

Always Provision for Income Tax A/c should be equal to T.D.S+Advance Tax+ Self Assessment Tax to avoid excess or short provision.

1 Like

CA Mukul Mittal (CA in practice) (384 Points)
Replied 10 August 2011

last year's bal. of provision for income tax shall be taken to p & l................

Sandeep Chandak (Service) (45 Points)
Replied 11 August 2011

In Ideal case, we used to keep the provisions and payment separately. As the assessment completes, we do the knocking off / adjustement entry.

As the assessment completes, the difference will be charged to P & L a/c and will be presented below the line under the head Income Tax related to previous years.

Hari Wadhwa (CA in Practice) (485 Points)
Replied 11 October 2011

The following article must be read to get a proper clarity on the concept on Taxation Entries. It's a very good article.

/articles/taxation-entries--11182.asp

lakshmi narayana (B.Com CA Final) (21 Points)
Replied 13 June 2014

reverse the excess provision passed during the last year in the current year and show the same the same in the notes to financial statements

Dharmik Trivedi (2 Points)
Replied 21 August 2018

Where do we have to show in notes to financial statement? And what will be the impact in BS

prasad Nilugal ( GST Practitioner & Accounts ) (14163 Points)
Replied 21 August 2018

You have show below the line in profit and loss appropriations as piror period income .income will be treated as appropriation . I am just suggesting entry as follows with reference to above entry

excess provision for Income tax 08-09 A/c Dr 25000

To Profit and loss Appropriation A/c Cr 25000

( Being prior period income adjusted )

1st entry is as it is .