Income Tax Provision: Correct Accounting for Sole Traders

Income tax Provision

Naveen Kumar

461 Points Posted on 16 January 2021

Sir,

Please suggest below provision for income tax is correct or wrong in books of account in proprietor firm

Capital account Dr.
provision for income tax Cr (current liability)

Replies (3)

Quick Summary

This discussion clarifies the correct accounting treatment for income tax provisions in a sole trader's books. It confirms that debiting the P&L account and crediting a 'provision for income tax' (current liability) is acceptable for clarity, even though income tax paid is often disallowed for taxable income. The personal income tax is ultimately transferred to the capital account.

CA. Sourav Sarkar

Chartered Accountant

16188 Points Posted on 16 January 2021

P/l a/c dr
to provision for income tax a/c

Giridhar S Karandikar

Team Lead

5675 Points Posted on 16 January 2021

Income tax paid gets disallowed while computing taxable income. so in case of proprietary concern it can be shown as drawings. however for better understanding of financial statements, IT, can be shown as debited to P&L.

Krishna Chaudhary

Accountant

1331 Points Posted on 16 January 2021

Yes correct. you have transfer ur personal income tax in capital ac

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Income tax Provision

Naveen Kumar

CA. Sourav Sarkar

Giridhar S Karandikar

Krishna Chaudhary

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