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Income tax provision in books

Vaneet Monga (Private) (246 Points)

10 May 2021

Dear experts

We have made the provision in books of account
Profit & Loss account Dr.
Provision for income tax Cr.
I have to sumbit one copy of balance sheet in Bank so kindly asvise how to show provision value 29000 in profit and loss account
Net Profit 731000 after provision 702000

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10 Replies

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 10 May 2021

It’s debit

Current tax a/c income statement

To Tax Provision a/c liabilities

in nominal account debit reduces value and pbt is reduced by your current tax amount.

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 11 May 2021

Income tax a/c dr
to Provision for income tax a/c

Provision for income tax a/c dr
to Bank a/c

Profit and loss account dr
to Income tax a/c

1 Like

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 11 May 2021

The above two entries are ok, why the third one?

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 11 May 2021

Income Tax should be transferred to profit and loss as it is and expense

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 11 May 2021

Nice Your doing ledger entries, while I understood it as final accounts entries. Sry for the confusion

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 11 May 2021

Ok got it. You debited the current tax liability to create a provision in the first entry.

CA. Sourav Sarkar (Chartered Accountant ) (24578 Points)
Replied 11 May 2021

Yes you're right

Naveen Kumar (629 Points)
Replied 12 May 2021

Sir. so that means income tax is expense.
in tally we need to create the ledger under indirect exp

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 12 May 2021

Yes. Tax and provision are different ledgers. Direct and indirect: While direct taxes are imposed on income and profits, indirect taxes are levied on goods and services. from this we can understand you need to have tax ledger for relevant taxes.