Treatment of advance tax

Provision a/c Dr.       1,50,000

         TO advance tax              50000

          To bank                            1,00,000

Prov.  For tax Dr. 150000.00

  Advance Tx      Cr.           150000.00

I.TAX Paid dr.     200000.00

Prov for tax cr.     150000.00

Advance Tax Cr.      50000.00

Income tax refundable Dr. 300000.00

Advance Tax                      Cr. 300000.00

Mr. Amit is correct I though advance tax is 5,00000.00

Mr. Amit is right...
 

Mr. Amit is right

As against the total liabilities of Rs. 200000 ,

first of all we will have to pay Rs. 50,000 less, as paid in Advance, so nullify that amount by crediting Adv. Tax with Rs. 50000

Then to pay the remaining Rs. 150000 we have provision made earlier so that the  Dr. 150000 will not affect the current year P&L A/C 

So, net Rs. 150000 we will pay in cash this year & complete liability will be end up.

Thus as earlier Mr. Amit has mentioned The Treatment of this transaction will be as under :

Provision a/c Dr.           1,50,000

         TO Advance Tax                    50,000

          To Bank                            1,00,000

agree with Mr. Amit

DR

Income tax 

200000/-

CR

Provision for I.T

200000/-

(entry for I.T)

DR

Provision for I.T

50000/-

CR

Bank

50000/-

(When you make part payment)

DR

Provision for I.T

150000/-

CR

Bank

150000/-

(when you pay the balance 2,00,000/- less 50,000/- tax )

 PL ..... DR    50000

         TO PFT.......DR 50000

2) PFT.......... DR 200000

            TO ADV TAX 50000

             TO TAX LIAB   150000

3)   TAX LIB ...DR 150000

              TO BANK 150000

We cannot nulify the provision account with advance tax, self assessment tax or TDS till we receive assessment order from IT department. In the given problem, the total tax liability is Rs.200,000 but provision created is only Rs.150,000. So, firstly you need to create additional provision of Rs.50,000. The advance tax and self assessment tax (difference of Rs.150,000) needs to shown separately under current assets.

So entry would be.

Tax expense Dr. 50,000

to Provision for income tax Rs.50,000

(by this your provision will go up to Rs.200,000 which is your tax liability)

Advance tax and self assessment tax wil be shown separately.

I hope you understood.