Short provision for tax

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This query is : Resolved

Sheshadri Srinivas (Querist)

09 April 2016 profit & loss (cr) - Rs. 2000 is appearing in the trial balance
Addl info:
P&L balance has been arrived after charging Rs. 5000 on account of short provision for taxation for the earlier year.
Provide for income tax for current year of Rs. 65000.
Profit before tax for current year - 150000
Less: provision for tax (65000)
Short provision for tax in py (5000)
profit for the period - 80000
What is this short provision for py and why is this deducted from currrent year profits?

Khyati Parekh

Khyati Parekh (Expert)

09 April 2016 short provision of previous year means the actual tax for the previous year paid in current year is more than the provision of tax done in previous year.
and being it expense it should be written off in profit and loss a/c and we will show is as previous year expense / provision charged to current year.

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CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

09 April 2016 Provision for tax is made based on working by company side. During assessment the IT dept make some dis allowances leading to requirement of higher tax payment which is the reason for short provision. Such short provision in the earlier years after assessment will be deducted/adjusted from current year profits,

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Sheshadri Srinivas

Sheshadri Srinivas (Querist)

09 April 2016 Like.
If the tax liability for the PY is 150,000 but
provision was made for only 100,000.So we debit provision of Rs. 100000 to py p&l and short provision of Rs. 50000 for current year? Is that right?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

09 April 2016 Yes you are right.........

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Sheshadri Srinivas

Sheshadri Srinivas (Querist)

09 April 2016 Thanks alot for helping me with sir!
finally could you give me journal entries in this regard. Like those to be passed in previous year and in current year

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

09 April 2016 Previous year entry.
Income tax provision CY(P&L ac) Dr 1,00,000
To Peovision for Income tax(BS) Cr 1,00,000.

Current year entry.
Income tax PY(P&L ac) Dr 50,000
Provision for Income tax Dr 1,00,000
To Advace tax Cr 1,00,000
To Bank ac Cr 50,000.

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