CLOSING PREVIOUS YEAR TAX PROVISION BY ADJUSTING ADVANCE TAX, TDS AND TCS RECEIVABLE


income tax provision


Companies, firms and sole proprietor who are doing business has to pay income tax on profits. There are some transaction in which third party will deduct TDS and will pay the balance amount to us and the party will issue a certificate for TDS/TCS. The journal for the same was explained in previous article.
We have understood in our previous article regarding closing entries it consist provision for income tax entry, and this provision have to be closed in beginning of next year(april) or on date of income tax payment(i.e. july or sep)

Usually in normal course we used to pass one compound journal entry for closing income tax provision account.
Let us understand this concept by taking illustration
Income tax provision = Rs.100000/- Advance tax = Rs.60000/- TDS & TCS =Rs.20000/-

Journal for Closing Income tax provision

SL.NO
PARTICULAR
DEBIT
CREDIT
1
Income tax Provision A/c      Dr
         To Advance tax  A/c
         To TDS/TCS receivable A/c
         To Bank A/c(Bal.Fig)      
100000

60000
20000
20000

 Rules for passing journal entry
 Debit
 Income tax provision is liability to entity the same have to be paid by the entity as prescribed by   income tax act , at the time of Income tax provision is debited to cancel the balance amount.

Credit
 Advance tax is tax paid in advance as per the provision of the act and the same is asset for entity because it is advance expense, this account is closed by crediting at the time of closing the tax provision .

Credit
 TDS is amount deducted by third party and paid on behalf of us to the Income tax department the same is asset for entity because it is advance expense, this account is closed by crediting at the time of closing the tax provision.  

Credit
 After adjustment of advance tax and TDS/TCS against the income tax provision if there is any balance left over will be paid by bank and the bank is credited .

But in practical scenarios the entity will make payment entry by knowing the balance amount payable by preparing statement showing the balance tax payable after adjustment of advance tax and TDS/TCS then we need to pass to separate entries .
The journal entry will be as follows
SL.NO
PARTICULAR
DEBIT
CREDIT
1
Income tax Provision A/c      Dr
         To Bank A/c(Bal.Fig)      
20000

20000
2
Income tax Provision A/c      Dr
         To Advance tax  A/c
         To TDS/TCS receivable A/c
80000

60000
20000

Ledger account of income tax will be as follows

Dr                 Income provision A/C            Cr
Date
Particular
Amount
Date
Particular
Amount
01.4.2015
To Advance tax
To TDS/TCS
60000
20000
01.04.2015
By Bal B/d
100000
31.9.2015
To Bank
20000




Total
100000

Total
100000

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