Current Tax
Also called: Provision for Income Tax
Income tax due to the IRD on this year's taxable profit, usually 25 percent for a private company, on the Profit and Loss statement.
In detail
Current Tax is the income tax the company owes the IRD for the fiscal year, calculated on taxable profit: book profit adjusted for disallowed items, tax depreciation in place of book depreciation and any losses carried forward. It is posted once at Ashadh end by Journal Entry, debiting this ledger and crediting Current Tax Liability; advance instalments paid in Poush, Chaitra and Ashadh reduce the liability, not the expense. The expense makes the Profit and Loss show profit after tax, which is what the shareholders can distribute. The computation is normally prepared with the auditor and filed by Ashwin end. Booking only the tax paid, or skipping the entry, overstates the profit and understates what the company owes.
Formula
Current Tax = Taxable profit x Tax rate, 25 percent for most companies, - Tax credits allowed
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Current Tax | Rs 2,00,000 | |
| Current Tax Liability | Rs 2,00,000 |
How to record it in BRAccount
- 01Prepare the tax computation from the Profit and Loss, adding back disallowed costs and swapping in tax depreciation.
- 02Go to Invoicing > Journal Entry > New dated Ashadh end.
- 03Debit Current Tax and credit Current Tax Liability for the computed tax.
- 04Submit. The entry below posts and profit after tax appears on the Profit and Loss.
- 05Set off advance tax and TDS Receivable against the liability by Journal Entry and pay the balance with the return.
When to use it
Post by Journal Entry at Ashadh end once the tax computation is done, with the other side in Current Tax Liability.
Example from the demo books
Dr Current Tax Rs 2,00,000, Cr Current Tax Liability Rs 2,00,000 for 25 percent tax on FY 2083-84 taxable profit of Rs 8,00,000.