The actual taxation entries are most important things as they clears the Balance sheet picture and gives real result.

Before going to understand the taxation entries, we should clear the various heads relating to Income Tax.

[1] Provision for Income Tax :

This provision is created from profit. This is below the line entry. After adjusting necessary items from gross profit, ( e.g. depreciation booked in books of accounts and depreciation allowable as per income tax rules ) taxable income arrives. On that taxable profit we have to make provision for income tax at prevailing rate of income tax.

Profit & Loss A/C DR (provision for income tax)

To Provision for Income Tax A/C

This provision being a liability, showed at “ Capital & Liability” side of Balance Sheet in the bracket of “Other Liabilities”.

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