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

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.

For TDS receivable article click here

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)

For CLOSING ENTRIES article click here

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