Handling Income Tax
Autor: Rohit Kiran • February 15, 2016 • Essay • 1,319 Words (6 Pages) • 897 Views
Example: Advance Tax, Provision for Tax and Entries subsequent to Assessment
Case 1 – Advance tax, provision for tax and assessed tax being the same amounts
Financial Year 2009-10
Closing Balance of Advance Income Tax (Asset) = 40[1]
Provision for Income Tax (Liability) = 40
Financial Year 2010-11
1. The company paid advance tax of 25 for this year. For the year, the profit before tax for reporting purpose was 80 and for the tax purpose (in accordance with the provisions of the Income Tax Act) was 100. The tax rate was 30%. This rate would be applied on 100 (and not on 80) and hence, provision for tax for 2010-11 would be 30.
2. Assume that the assessment for FY 2009-10 is not done. Hence,
Closing balance of Advance Income Tax (Asset) = 40+25=65
Provision for Income Tax (Liability) = 40+30=70.
Financial Year 2011-12
1. Assume that the assessment for FY 2009-10 was completed during 2010-11 and actual tax liability was assessed to be 40. At this stage, the advance tax paid in 2009-10 and provision for tax in 2009-10 need to be adjusted.
Entry: Provision for income tax Dr 40, Advance Income Tax Cr 40 (both pertaining to FY 2009-10).
After this entry is done:
Closing balance of Advance Income Tax (Asset) = 65-40=25 (related to FY 2010-11)
Provision for Income Tax (Liability) = 70 – 40=30 (related to FY 2010-11).
2. The company paid advance tax of 35 for this year. For the year, the profit before tax for reporting purpose was 100 and for the tax purpose (in accordance with the provisions of the Income Tax Act) was 90 The tax rate was 30%. This rate would be applied on 90 and hence, provision for tax for 2011-12 would be 27.
3. Assume that the assessment for FY 2010-11 is not done. Hence,
Closing balance of Advance Income Tax (Asset) = 25+35=60
Provision for Income Tax (Liability) = 30+27=57.
(Contd on page 2)
Case 2 – Advance tax > provision for tax and assessed tax =Provision for tax
Financial Year 2009-10
Closing Balance of Advance Income Tax (Asset) = 40
Provision for Income Tax (Liability) = 35
Financial Year 2010-11
1. The company paid advance tax of 25 for this year. For the year, the profit before tax for reporting purpose was 80 and for the tax purpose (in accordance with the provisions of the Income Tax Act) was 100. The tax rate was 30%. This rate would be applied on 100 (and not on 80) and hence, provision for tax for 2010-11 would be 30.
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