Income Tax Payable Journal Entry

Income tax payable journal entry is Income Tax Expense Account Debit and Income Tax Payable Account Credit. The amount of income tax a company owes to the government but has not yet paid. This amount is recorded as a liability on the company’s balance sheet until it is paid.

Example Scenario

Let’s assume a company calculates its income tax for the financial year 2023-24 and determines it owes ₹100,000 in taxes on 31-03-2024.

Journal Entry to Record Income Tax Expense and Liability

Explanation:

• Income Tax Expense Account Debit: Increases the expense account, representing the cost of income tax for the year.
• To Income Tax Payable Account Credit: Increases the liability account, showing the amount of tax owed to the government.

Journal Entry to Pay Income Tax

When the company pays the income tax, the liability is settled. Let’s assume the company pays the tax on 30-04-2024.

Explanation:

• Income Tax Payable Account Debit: Decreases the liability account, reflecting the payment of the tax owed.
• To Cash/Bank Account Credit: Decreases the cash or bank account, showing the outflow of cash to pay the tax.

Summary

• Income Tax Expense: Recorded when the tax liability is determined.
• Income Tax Payable: Recorded as a liability when the tax is determined and remains until paid.
• Cash/Bank: Reduced when the tax payment is made, settling the liability.

Recording income tax payable accurately ensures that a company’s financial statements reflect its true financial position and compliance with tax obligations.