Account for IT Refund

How to account for IT refund?
Replies (2)
Quick Summary
This discussion explains how to make accounting entries for an IT refund. It details debiting an asset account and crediting the original tax expense account. The process involves specific entries for advance tax paid, expenses, and TDS deducted. It also covers provision entries, carrying forward balances, and final adjustments when the tax payable is offset against advance tax and TDS.

Make an accounting entry for tax refund money

You will debit an asset account and credit the originally debited account for the taxes paid. To show that you received a tax refund, use the following entries: Debit the cash account. Credit the income tax expense account.

process  of   refund  this  F.Y  and next  F.Y 

1)   Advance Income Tax   A/c      Dr 

      To   Bank         A/c       Cr 

   ( Advance  Tax  paid ) 

 

2)   Expense       A/c     Dr 

      TDS             A/c      Dr 

      To  Bank      A/c               Cr 

(   Expense  paid  also  TDS  Deducted ) 

 

On 31st  March  provision  Entry 

 Income    Tax    A/c      Dr 

 Income  Tax  payable   A/c   Cr 

(   provision entry  on 31st  march ) 

 

on  1/4/2020     Advance  Tax  A/c  , TDS  A/c  debit  balance   and  Income  Tax payable credit  balance   will  be  Carried forward  in the next  F.Y   because assessment  will be done next  year . 

 

After assessment  in the next  year ,   Adjustment  entry will be 

Income  Tax payable  A/c     Dr 

To  Advance  Tax       A/c      Cr 

To  TDS                     A/c       Cr    

( Income Tax   payable  will be  adjusted  against  paid   ) 

 

Excess  Tax  paid  refundable  entry  will be 

 Income  tax  payable   A/c     Dr 

To  Income  Tax  refund   A/c   Cr 

( excess  tax paid  refundable ) 

 

When we received refund  as per  your  query  refund  entry will be 

Bank                      A/c     Dr 

To  Income  Tax payable  A/c   Cr 

(  Income Tax  refund Cheque no ...) 

 

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