26 August 2010
1)In case of a company income tax is its expenses.But in case of a proprietorship business it is the personal expenses of the individual.So payment of tax is to be debited to individual's capital account. However AS22 is also applicable to non corporate entity.Then how we pass entry in case of proprietorship firm if AS22 is applied.
2)In case of a company when we estimate to pay advance tax in different dates it adjusts the TDS already deducted,so is it necessary to show TDS receivable in balance sheet? If no why some company show it in balance sheet under current asset?
27 August 2010
With Reference to the 1 question , the deferred tax arise on account of timing difference which is result of income tax act and Companies Act. For example Deprecaition as per IT act and Deprecaition Act. This situtation may not appilacable to individual. Further the deferred tax can be arise because of TDS , bonus , compliances. For these things if u recognise DTA this year it will automatically get revesered by way of DTL on the year of payment. Till such time it can be shown as Differed tax in the balance sheet of Individual.
With reference to ur question no 2 . pls understand while remitting the advance tax the TDS will be adjusted its not mean that u r passing the entry in the books. In the balance sheet of a company
the Provision for Tax = Advance tax+TDS(Receivable)+Self assessment Tax.
Liability = Asset
So it is necessary u have to show TDS as current asset.
Income Tax Law recognizes Company and Individuals as distinct entities to charge income tax. In case of company, income tax is charged to the Company. Hence, tax paid has to be recognized as an expense of the company and accordingly the same is presented in accounts.
Proprietorship firm is not different from individual. Proprietorship firm is the trade name of an individual. Tax is charged to individual. Hence, income tax has to be shown as personal expense, in case of both entities i.e. proprietorship firm and individual.
CAclubindia
