Income tax return: Proper filing of Income Tax Return require proper maintenance of records. Making of balance sheet and profit loss is utmost important. Filing of ITR 3 and ITR 4 requires the details of Profit and loss A/C and Balance in the Format provided in the Income Tax Utility Forms. Every business is supposed to make Profit and loss and Balance Sheet at the end of the financial year. However, it is advisable for everyone to prepare capital account or Profit loss account and balance sheet for every individual.
P&L account takes revenues into account for a specific period. It also records any expenses or costs incurred by these revenues. Guidelines for preparation of Profit and Loss are:-
If the ordinary business is other than finance, disclose revenue generated from sale of products, sale of services, other operating revenues or other Income on Credit side of P/L Account .
In case ordinary business is of finance nature, disclose the revenue from interest and financial services which includes interest, financial service fee and net gain/loss on foreign currency transactions.
It will Purchase of raw material, goods for trading, work-in-progress goods, Consumption of stores and spare parts, etc
If selling of goods and service is exempted from GST then any GST levied on the input supply shall be added to the cost.
General list of expenses-
Penalties paid for contravening provisions under any Law are not allowed as deduction from P/L account.
Always disclose the turnover which is disclosed in Goods and Service Tax or GST Returns. Any inconsistencies may bring notices for you. Read More : GST Turnover v/s Income Tax Turnover
Balance sheet is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business partnership, corporation, private limited company or other organization. It contains Assets, liabilities and capital at the end of its financial year.
Guidelines for preparation of Balance sheet are:-
Classification is based on operating Cycle which means time between acquisitions of an asset till conversion of that asset into cash.
Current asset:-
If not than the asset shall be classified as non-current assets or Fixed assets.
Current Liabilities
If not than the liability shall be classified as non-current liability.
If TDS or TCS standing in last year balance sheet, one must check whether it has been refunded or receipt. Read Also: TDS rate chart applicable for FY 2021-22 (AY 2022-23)
Any Income which is earned like FD interest but not received shall stand in Asset side of balance sheet. Likewise any expense accrued but not paid like TDS liability shall stand in liability side of Balance sheet.
Land shall stand in Balance sheet. The Land value shall be the sum of stamp duty value, stamp duty and any other duty or fee paid.
If any loan is taken to acquire any fixed asset, then the interest accrued till date of put to use shall be capitalized.
Donation to political party is disallowed but you can take the deduction from the capital account.
Profit from sale of agriculture land is neither the business profit nor it is capital gain. It is exempt but it must be shown in Income Tax Return.
If we identify any mistake of any earlier year, we generally try to correct the old accounts where we get caught by the Software. It is advisable to never touch the fixed asset or cash balance as their closing balances are carry forward to next year.
The author of above article is Riya Thawani.
