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Provisions release - tax impact

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sumit pahwa

service

21 Points Posted on 10 July 2008

Hi friends

I want to know that when provisions are created, the entry is

P&L Dr.
To Provisions

Therefore its a charge on profits and hence results in tax saving also to that extent.

Suppose in later years, the provisions have to be released, the above entry will have to be reversed. Does that mean that in the year of release, the said amount will become taxable?

Regards
Sumit

Replies (1)

Mahesh Paryani

Chartered Accountant

353 Points Posted on 10 July 2008

you havent clearified that provision is for what?

if the provision is specific in nature that is provision is created specifically for any liablity then yes it would be treated as prior year income and no diduction would be allowed

and if it is general in nature then diduction as per it would not be allowed as it is a provision so no question of write back

regards