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Income tax shown as Drawings?

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Debashis Chakraborty

CEO

23 Points Posted on 01 December 2020

Hello,

I need clarification as my CA communicates that the income tax that I have paid in AY 19-20 should be shown as a Drawings in the AY 20-21 during balance sheet creation,

Normally we show the last year's tax as a Legal expense in the Profit & Loss page of this year and like that the last few years the tax has been paid, but this new rule of showing the income tax as a personal drawing seems to be illogical.

Need expert comments on the same.

Replies (4)

Quick Summary

This discussion clarifies why income tax paid in a previous financial year (AY 19-20) might be shown as drawings in the current year's (AY 20-21) balance sheet. Unlike typical legal expenses, income tax is considered a personal expense, not a business one. Therefore, to account for advance tax, TDS, or self-assessment tax paid, it's treated as drawings for individuals and proprietorship firms.

CA ABHAY GUPTA

Practice

1639 Points Posted on 01 December 2020

Your CA is correct, Income Tax is not allowed as an expenses means not to be shown in P&L as refund amount is not taxable in hand of receiver. thus the only way to set off the last year advance tax/tds/self Assessment tax is to be shown as drawings