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Collection & Recovery of Tax
Collection & Recovery of Tax
of Tax
A provision for income taxes is the estimated amount that a business or individual taxpayer
expects to pay in income taxes for the current year. The amount of this provision is derived by
adjusting the reported net income of a business with a variety of permanent differences and
temporary differences. The adjusted net income figure is then multiplied by the applicable
income tax rate to arrive at the provision for income taxes.
This provision can be altered to a considerable extent by the amount of tax planning that a person
or business engages in to defer or eliminate the income tax liability. Consequently, the
proportional size of this provision can vary significantly from taxpayer to taxpayer, based on
their tax planning abilities.
A planned provision for income taxes can also be included in a company’s budget model. In a
well-crafted model, this planned provision would include both permanent and temporary
differences. In a more basic model, the provision is simply based on the applicable tax rate.
Section 220: When tax payable and when assessee deemed in default
Section 228: Recovery of Indian tax in Pakistan and Pakistan tax in India [Omitted]
2. Cost of Financing:
Financing of working capital through provision for taxation does not involve any cost.
3. Legal Formalities:
Use of provision for taxation as a source of finance does not require any legal formalities.
4. Floatation Cost:
1. Cheap:
2. Obligation:
3. Short-term Finance:
Sometimes excess provision may be created which might lead to misuse of funds.