Current Tax Liability
Also called: Income Tax Payable, Provision for Income Tax
Income tax for the year that you still owe the IRD, on the Balance Sheet. Net of advance instalments already paid.
In detail
Current Tax Liability is the income tax the company owes the IRD for the year's profit, less any advance instalments already paid. The Income Tax Act asks for advance tax in three instalments, in Poush, Chaitra and Ashadh, and the balance with the return by Ashwin end; the year-end Journal Entry debits Current Tax for the full charge and credits this ledger, and each payment debits it. Only the unpaid part remains on the Balance Sheet. It is different from VAT Payable and TDS Payable, which are taxes collected from others; this one is the company's own tax. Forgetting the year-end charge overstates profit and leaves out a liability the IRD will certainly collect.
Formula
Current Tax Liability = Taxable profit x Tax rate - Advance tax instalments paid - TDS Receivable set off
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Current Tax | Rs 2,00,000 | |
| Current Tax Liability | Rs 2,00,000 |
How to record it in BRAccount
- 01Compute taxable profit and the tax at the company's rate, 25 percent for most companies.
- 02Go to Invoicing > Journal Entry > New dated Ashadh end.
- 03Debit Current Tax and credit Current Tax Liability for the year's charge.
- 04Submit. The entry below posts.
- 05Pay instalments by Journal Entry: Dr Current Tax Liability, Cr Bank, and set off TDS Receivable the same way.
- 06Read the remaining balance on the Balance Sheet before filing the annual return.
When to use it
Post by Journal Entry at Ashadh end when the year's tax is computed. Clear with a Payment Entry when filing the return.
Example from the demo books
Dr Current Tax Rs 2,00,000, Cr Current Tax Liability Rs 2,00,000 for 25 percent income tax on FY 2083-84 profit.