Provision for income tax entry for previous year

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Fact of the Case:

1. Entry passed for Income Tax Provision done in 2008-09 for Rs. 200000/-

Income Tax A/C                                               Dr.       200000/-

         To    Provision for Income Tax             Cr.       200000/-

2. Actual Liability arise for Rs. 175000/-, Entry passed in 2009-10

Provision for Income Tax                              Dr.       175000/-

         To    Bank                                               Cr.       175000/-

 

Balance Rs. 25000/- is still standing in Books.

 

How should i clear the provision amount :-

1. Adjust the amount against Capital account? or

2. Showing it as Prior period item as Income and clear provision amount? or

3. Any other impact can be given? please let me know.

Replies (7)

In my Opinion you can show it as Excess Provision made for Income tax and credit the amount to the Profit & loss A/c of the current year by passing the following entry:

1. Provision for Income Tax FY 08-09

    To Excess Provision for Income tax FY 08-09


2. Excess Provision for Income tax FY 08-09

     To Profit & Loss a/c

 

Always Provision for Income Tax A/c should be  equal to T.D.S+Advance Tax+ Self Assessment Tax to avoid excess or short provision.

last year's bal. of  provision for income tax shall be taken to p & l................

In Ideal case, we used to keep the provisions and payment separately. As the assessment completes, we do the knocking off / adjustement entry.

As the assessment completes, the difference will be charged to P & L a/c and will be presented below the line under the head Income Tax related to previous years.

The following article must be read to get a proper clarity on the concept on Taxation Entries. It's a very good article.

/articles/taxation-entries--11182.asp

reverse the excess provision passed during the last year in the current year and show the same the same in the notes to financial statements

Where do we have to show in notes to financial statement? And what will be the impact in BS

 You have  show below the line  in  profit and loss appropriations  as piror period income .income will be treated as appropriation . I am just suggesting entry  as follows with reference to above entry 

 excess provision for Income tax 08-09  A/c Dr    25000

 To Profit and loss Appropriation             A/c Cr                  25000

( Being prior period income adjusted ) 

1st entry is as it is .

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