income tax payable is one account type in the Current Liabilities section of the Balance Sheet of a company. It is a compilation of Taxes that are due to the government in one year. The calculation of this Income tax payable is as per the prevailing tax law that the country, wherein the company is situated, follows.
Generally, income tax payable is shown in the form of current liability because the debt gets resolved in the next year. But any part of income tax payable, which is not scheduled for payment in the upcoming 12 months, gets classified in the form of a long-term liability.
Income tax payable is one important component as far as calculating the deferred Tax Liability of a company is concerned. This tax liability takes place when there is a difference between the income tax expenditure and the income tax liability of a company.
This difference could be because of the timing of when the Real Income tax might be due. For instance, suppose a business owes Rs. 1000 in income taxes while calculating with the Accounting standards. But during the time of filing, if the company owes Rs. 700 on the Income Tax Return, then Rs. 300 will be the difference in liability in the future period.
The taxes, based on the tax law applicable in the country, get calculated on the net income. The taxable rate is as per the corporate Tax Rate. For firms and organizations that are due a tax credit from the taxing agency, the income tax payable amount decreases.
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Generally, income tax payable comprises levies from the local, state and federal levels. The amount due is the amount that has been collected since the time the firm paid its last tax. Commonly, sales taxes, property taxes and payroll taxes are all different liabilities.
Also, when it comes to calculating income tax expenses, usually companies follow a specific norm. This figure gets listed on the income statement of the company and is the last expense line item before the net income gets calculated.
Once the income Tax Return is completed, the firm gets to know the real amount of taxes that it owes. And, this owed amount of taxes gets reflected in the form of tax liability.
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