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Advance tax paid

Mohinish (B.Com) (25 Points)

28 June 2013

Hi...

I am appointed as an part time accountant by a small business firm, but i dont have a complite knowledge of taxation.

i have a query regarding taxation entry please help.

where to show the entry of advance tax paid, tds deducted,

and how to show the effect of income tax paid at the end of that financial year...

please help..

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2 Replies

Ajit (Manager) (40 Points)
Replied 28 June 2013

Accounting for Income-tax In order to avoid unnecessary confusion in accounting for income-tax and preparation of Cash-flow Statement ( to arrive at the Payment of Income-Tax,) , it is advisible to maintain the following 2 Accounts separately, year-wise, for example., , Advance Tax ( 2007-08) Provision for Income-Tax (2007-08) and continue to maintain the said Accounts till an undisputed Assesssment is completed. We know that when Advance Tax is paid, the entry is : a) Advance Tax ( FinYear) Dr To Bank. Income-tax deducted at source from payments received by us is also accounted as above. b) Similarly, when Provision for Income-tax is made at the end of the year , the entry is : Profit & Loss A/c Dr To Provision for Income-Tax ( Fin Year) How do we square up the Accounts in (a) and (b) above ? The following assumptions are made for easy understanding under different situatioins : I. Fin Year 2004-05 and Asst Year 2005-06 : ASSESSMENT COMPLETED IN FY 2007-08. Excess Advance tax paid, but Short provision made : (A) Advance Tax paid is Rs. 100/- (B) Provision for Tax is Rs. 85/- (C) Assessed & undisputed Liability is Rs. 90/- Journal Entries in the Financial year 2007-08 is : a) Profit & Loss Account Dr 05 To provision for Tax ( FY-2004-05) 05 ( Being the provision for IT for the year FY2004-05 short provided earlier now made up) b) Provision for I T (FY2004-05) Dr. 90 IT Refund Receivable Dr 10 To Advance Tax(FY20004-05) 100 On receipt of Refund Order from IT Department : c) Bank A/c Dr 10 To IT Refund Receivable 10 II. Fin Year 2004-05 and Asst Year 2005-06 ASSESSMENT COMPLETED IN FY 2007-08. Excess Advance tax paid, and excess provision is also made (A) Advance Tax paid is Rs. 100/- (B) Provision for Tax is Rs. 110/- ( C) Assessed & undisputed Liability is Rs. 95/- Journal Entries are : a) Provision for I-T(FY2004-05) 110 IT Refund Receivable 5 To Advance Tax(2004-05) 100 To Provision for IT no longer required withdrawn 15 b) Provision for IT No longer required withdrawn Dr 15 To P & L Account 15 III. Fin Year 2004-05 and Asst Year 2005-06 ASSESSMENT COMPLETED IN FY 2007-08. Short Advance tax paid, and excess provision is made A) Advance Tax paid is Rs. 100/- (B) Provision for Tax is Rs. 130/- ( C) Assessed & undisputed Liability is Rs. 120/- Journal Entries are : a) Provision for IT-2004-05 Dr 130 To Advance Tax (2004-05) 100 To IT Payable (2004-05) 20 To Provision fo IT No longer required withdrawn 10 b) ) Provision for IT No longer required withdrawn 10 To P & L Account 10 IV. Fin Year 2004-05 and Asst Year 2005-06 ASSESSMENT COMPLETED IN FY 2007-08. Short Advance tax paid, and short provision for IT is made (A) Advance Tax paid is Rs. 100/- (B) Provision for Tax is Rs. 90/-- ( C) Assessed & undisputed Liability is Rs. 130/-- Journal Entries are : a) Profit & Loss A/c Dr 40 To Provision for IT-(2004-05) 40 b) Provision for IT(2004-05) Dr 130 To Advance Tax (2004-05) 100 To IT payable (2004-05) 30 c) IT Payable A/c Dr 30 To Bank 30

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Mohinish (B.Com) (25 Points)
Replied 28 June 2013

Sir is advance tax paid and TDS deducted from rent received is shown as asset ?

and whether income tax paid should be accounted in same financial year or next year? how?

actually Sir the pervious accountant has shown advance tax paid and TDS deducted as asset in AY11-12 and in AY 12-13 he has shown income tax paid as deduction from capital account. without making any provision/