INCOME TAX PROVISION PREVIOUS YEAR

Hi Kunal,

If you didn’t make provisional income tax entries during FY 2022-23, here’s how you can adjust the advance tax, TDS, TCS, and income tax paid while preparing your books or accounts now:

1. Advance Income Tax & TDS/TCS Credit:

• Advance tax, TDS, and TCS are treated as prepaid assets (or current assets) until the final tax liability is computed.

• When you file your income tax return (ITR) and compute the final tax liability, these amounts are adjusted against your total tax liability.

2. Accounting Treatment in FY 2023-24 (when final tax liability is determined):

• At the time of payment or receipt of TDS/TCS certificates:

  • Debit: Advance Tax/ TDS Receivable / TCS Receivable (Asset)

  • Credit: Bank or Tax Deducted Source (depends on mode)

• At the time of recognizing income tax expense (based on tax computation):

  • Calculate the total tax liability for FY 2022-23 (including interest, if any).

  • Debit: Income Tax Expense (P&L)

  • Credit: Income Tax Payable (Liability)

• At the time of adjusting prepaid tax:

  • Debit: Income Tax Payable (Liability)

  • Credit: Advance Tax/TDS/TCS Receivable (Asset)

• Any balance remaining in prepaid tax (Advance Tax/TDS/TCS) after adjusting the final liability can be shown as Income Tax Refund Receivable.

3. If tax is already paid but no entry is made:

• You may pass the following journal entry now:

  • Debit: Advance Tax / TDS Receivable (Asset)

  • Credit: Bank

• Later, when tax expense is computed, adjust as above.

Summary: