Tax on income tax refund applicable

At the time of booking the TDS refund. The following entries can be passed:

1) either by Debiting the Capital A/c (proprietorship)

2) or by Debiting the Income Tax Refund Receivable A/c

At the time of receiving the IT Refund along with Interest, relevent entries are:

1) either crediting capital a/c with Refund receivable & crediting P&L with Interest thereon

2) or crediting Income Tax Refund receivable with Refund amt & P&L with interest.

In your case, the refund amt. should be credited either to Refund receiveble A/c or Capital A/c & interest to P&L A/c respectively.

Tax will be only charged on Interest on Income Tax Refund.  The refund is the asset of the Company and will be adjusted against the provision for that asst year.

whenever the assessee receives an asst order, he should pass the following entry:

Provision for Income Tax ...........................           ..Dr.

Income Tax Refundable/ Bank(If any)........................Dr.

Income Tax for earlier year  (Balancing figure)          Dr

                            To Tax Payable (If any)

                            To Advance Tax/ TDS/ Self Asst Tax

                            To Interest on Income Tax      

                            To Income Tax fo earlier year (balancing figure)      

Clearly mentioned that 

Income Tax Refund is not taxable .....!!!!!!!

Interest on Income tax Refund is Taxable....!!!!!!!!

agreee with above ,your client done right thing,interest on income tax refund is taxable

Originally posted by : valji
	agreee with above ,your client done right thing,interest on income tax refund is taxable

Your client should not credit the income tax refund to the P& L A/c. It is not revenue in nature.

Income Tax Refund is not taxable .....

Interest on Income tax Refund is Taxable...

Income Tax Refund is not taxable but Interest on Income tax Refund is Taxable...