The company is an exporter and being an exporter Service tax, VAT etc are refundable to it. The company shows Service Tax / VAT refundable under current assets. The company has not received major portion of its refunds and huge amount has accumulated under the head service Tax / VAT refundable.
Now the company wants to change the accounting ST / VAT. It will debit the expenses including service tax to its PL A/c. On receipt of refund the amount will be credited to income.
Is it an allowable accounting policy?
Can a company debit to PL A/c its refundable Service Tax / VAT to PL A/c and credit to PL A/c on receipt of refund.
Pls. reply.
Exporter Debates Accounting Change for Tax Refunds; Experts Warn Against Violating Accrual Principles and Tax Disallowance Risk A company, an exporter, is seeking advice on changing its accounting method for refundable Service Tax and VAT. Currently, these refunds are listed under current assets, but the company has not received a substantial portion of them. The proposed change involves debiting these taxes to the Profit and Loss (P&L) account and crediting them upon receipt of refunds. Two replies advise against this approach, citing it would violate accrual principles and that such refunds should remain under current assets, as charging them to the P&L account would lead to disallowance by income tax authorities. (AI Summary)
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