treatment of provision for tax and advance income tax

both are to be adjusted against assessed tax liblity provided that both provison & advance tax belong to same tax law

Make provision for income tax by:

P & L a/c Dr.

To Provision for I.Tax

on adjustment:

Provision for I.Tax Dr.

To Income Tax A/c

On payment of Income Tax:

Income Tax Dr.

To Cahs/Bank

And for Advacne tax the entry would be :

Advance Tax Dr.

To cash/Bank and shows in b/s assets side

@ munni....   i think u can make me understand better , please elaborate....

Hi Manisha,

Provision for Income-tax is made based on estimation and accordingly Advance Tax would have been paid.  `Provision for Income-Tax` would appear in Current liabilities and `Advance Tax` will appear under Advances in Current Assets. 

Both the accounts can be adjusted once the tax is assessed and the return is filed.  If the provision made in the books is lesser, additional tax liability will be booked as expenditure and if the Advance Tax paid is more than the provision, the excess paid will continue to be shown under current Assets till the receipt of refund.  So once the final tax is ascertained, both the accounts will be given effect and adjusted.

Dharmaraju has given all in one answer.

keep it up 9.9/10.

the a/c entry wld be as above given by CA going to be in future

Mr.Dharamaraju is right. To put in a much simpler way. 

Advance tax is paid over a period of time before the completion of the financial year. The amount of advance tax is determined based upon the tax outflow at year end. The payment of advance tax is in majority of the cases equal to provision.

At the end of the year when the actual tax liability is known. Advance tax and provision for income tax is knocked off and balance if more is paid and if less then shown as refund receivable from department.

You ought to consider deferred tax effect as well.