Can anyone help me what is provision for income tax

Hi friends,

I am confused about provision for income tax

What is IT

Why provision for IT

Regards,

Vishwanath Kumbar

Replies (2)

Provision for Income Tax is money that needs to be set aside when your employer or the government does not take income tax off yor paycheque. If this is the case, money hould be set aside in order to pay this amount of money when the time comes. 

In case of assessee carrying on business,  the assessee has to pay Advance Tax each quarter on or before the specified dates by estimating his total profit for the year & calculating the tax liability.  After the year end the assessee has to estimate his tax liability and make the provision for tax accordingly his accounts by Debiting the Income-tax A/c and crediting Provision for tax account.

After finalizing the accounts the assessee calculates his final tax liability.  Final tax liability is after taking the credit of Advance Tax paid by the assessee and the tds made and paid on behalf of the assessee.  The balance tax if any should be paid by the assessee.  In the subsequent year the final tax liability, advance tax and TDS is adjusted against the provision for tax created during the previous year and the excess/short provision shuld be debited/credited to the P&L A/c.

In case of a salaried person, the employee needs to submit his investment declaration to his employer and teh employe in turn assessees teh tax liability of the employee by deducting the investments made by the employee from his taxable income and if there is still any tax liability, it is deducted in 12 equal installments from the salary payable to teh employee.

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