Accounting Entry For Provision of Tax & its adjustment after completion of Assessment

 

Facts of the case		CASE -1		CASE -2
(A)	Profit as P& L A/C	500000.00		500000.00
(B)	Provision for Income Tax @30%	150000.00		150000.00
©	Advance Tax paid	90000.00		90000.00
(D)	TDS deducted	24000.00		24000.00
(E)	Self Assessment tax paid	36000.00		36000.00
(F)=C+D+E	Total Tax paid in Advance	150000.00		150000.00
(G)	Actual Tax Liability as per Assessment	182000.00		140000.00
Journal Entry
		CASE -1		CASE -2
Date	Particular	Debit	Credit	Debit	Credit
1	Profit and loss Appropriation A/C	150000.00		150000.00
	To Provision for income tax A/C		150000.00		150000.00
2	Advance Income tax A/C	126000.00
	TDS deducted A/C	24000.00
	To Debtors( Deductor) A/C		24000.00
	To Bank Account credit		126000.00
When income tax department calculate the real income tax by providing the real income position of company in previous year .You will remember following point-Adjustment of actual income tax with provision of Income Tax by passing following adjustment entry
3	Provision for income tax A/C	150000		150000
	Profit & loss account ( additional Tax liability should be debited in P&L Appropriation account in the year in which Assessment completed	32000.00		N.A
	To Income tax Account ( Actual Tax Liability after assessment )		182000.00		140000.00
	To Profit & loss appropriation account (Additional provision should be reversed & be credited  in P&L Appropriation account in the year in which Assessment completed				10000
We must calculate the difference between actual Tax paid and Total tax paid in advance(i.e  advance + tds+self assessment tax )
1. If Advance tax paid is less than actual tax liability, then iWe will have to difference and following entry should be passed
	Income tax A/C (i.e. Actual liability)	182000.00
	To Advance tax A/C		90000.00
	To TDS A/C		24000.00
	To Self Assessment tax A/C		36000.00
	To Bank A/C ( Payment of additional tax liability)		32000.00
	Income tax account credit
If advance and tds is More than actual tax , then income tax department will pay refund, and following journal entry should be passed
1st transfer advance tax and tds to income tax account
	Income tax account debit			140000.00
	Bank A/C ( Refund Received)			10000.00
	To Advance tax A/C				90000.00
	To TDS A/C				24000.00
	To Self Assessment tax A/C				36000.00