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Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
Income tax payable is a tax owed by an organization on the balance sheet. They are presented as a current liability, reflecting the portion expected to be settled within the next 12 months.
The liability known as income tax payable is disclosed in financial accounting records, representing the anticipated amount an entity is set to remit in income taxes over the next 12 months. This figure is included in the current liabilities section of the company’s balance sheet.
Calculating income tax payable adheres to generally accepted accounting principles (GAAP), incorporating prevailing tax rates in the jurisdictions where the organization is liable to taxation. Enterprises must adhere to tax laws in other countries where they conduct operations and generate income.
The taxes owed by an organization are detailed under the category “income tax payable” on the organization’s balance sheet. Income tax payable is indicated as a current liability, representing the portion anticipated to be settled (i.e., paid) within the upcoming 12 months.
The Generally Accepted Accounting Principles (GAAP) provide guidelines for reporting events that result in income or loss. However, these guidelines diverge from the tax-law specifications governing reporting the same events on tax returns. Commonly, disparities arise in the depreciation rules between the two systems, leading to timing differences. An organization’s financial statements capture these variations in reporting, particularly in the timing of tax liabilities.
Financial accounting plays a crucial role in managing income tax payable. It involves recording, analyzing, and reporting financial transactions and information to ensure accurate income tax calculation and payment. The information provided by financial accounting enables companies and individuals to determine their taxable income, claim deductions, and comply with tax laws.
The calculation of income tax payable depends on various factors, including the applicable tax rates, deductions, and credits. Businesses and individuals often utilize software or engage the services of tax professionals to calculate their income tax liabilities accurately. It involves analyzing income sources, deductible expenses, and other relevant factors to determine the final tax payable amount.
Recording income tax payable requires proper accounting entries to reflect the liability on the balance sheet. When the tax liability is determined, an entry is made debiting the income tax expense account and crediting the income tax payable account. As the tax is paid to the government, the income tax payable account is debited, and the cash account is credited, reducing the liability. These entries allow for transparent tracking and reporting of income tax payable in financial statements.
Managing your income tax payable effectively can save you money and minimize stress during tax season. Some key strategies to consider are:
Effective tax planning is crucial to navigating income tax payable. It involves analyzing different tax strategies and selecting the ones that minimize the amount of tax owed. Just stay within the legal boundaries, or you might find yourself trapped in the legal consequences of tax evasion.
Tax deductions and credits are your best friends when managing income tax payable. They lower the amount of taxable income, thereby reducing your tax liability. Make sure to take advantage of every deduction and credit available to you.
When it comes to income tax payable, paying on time is crucial. Late payments can result in penalties and interest charges that can quickly add up. So, be a responsible taxpayer and file your taxes on time. Your wallet will thank you, and you will avoid any unnecessary headaches with the tax authorities.
Income tax payable and income tax expense are two distinct concepts, although they are related to the income taxes a company owes to the government. Both are essential aspects of financial accounting, but they serve different purposes. The difference between them can be observed in this table:
Feature |
Income Tax Payable |
Income Tax Expense |
Location |
Balance Sheet (Current Liabilities) |
Income Statement |
Nature |
Actual amount owed to the government (liability) |
Estimated tax expense for the accounting period |
Timing |
Represents tax owed within the next 12 months |
Reflects estimated tax for the current period, regardless of payment due date |
Accuracy |
More precise, based on current tax calculations |
May differ from actual tax paid due to adjustments, penalties, or refunds |
Purpose |
Shows creditor and investor expectations on tax burden |
Assesses profitability by including tax expense in operating costs |
Income tax payable aligns with generally accepted accounting principles (GAAP) and incorporates prevailing tax rates in the relevant jurisdictions. The designation of income tax payable as a current liability on the balance sheet signifies its anticipated settlement within the upcoming 12 months. A comprehensive understanding and management of income tax payable are essential for financial stability, legal compliance, and optimizing tax liabilities. It ensures fiscal responsibility and the preservation of an organization’s financial health.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
