How to account income tax paid

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This discussion clarifies how to account for income tax paid by a firm or sole proprietorship. The consensus is that income tax is not an expense but rather a withdrawal by the partners or proprietor. It should be treated as such in the accounts, rather than as a capital expenditure or a tax provision.

binu sukumaran

binu sukumaran (Querist)
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07 June 2023 sir.
How to treat Income tax of firm, and sole property ship. whether it is an expenses or partners withdrawal . Last year income tax 2.5 lakhs paid during 22-23 year. but income tax is calculated u/s44AD 6%. Please advise

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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07 June 2023 The final tax liability is treated as capital expenditure. Or proprietor's withdrawal. Before that it can be treated as tax provision in firm's account.

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