## Treatment of Income Tax Refund
### Core Rule
Income tax paid is shown net of refund received in the Cash Flow Statement:
```
Tax outflow (net) = Tax paid in current year − Refund received in current year
```
This net figure is deducted at the end of Operating Activities.
### Provision for Tax Ledger (to find cash tax paid)
When the question gives opening and closing provision for tax balances plus the current year charge (via P&L), use the ledger to force out the cash tax paid:
```
Provision for Tax Account
─────────────────────────────────────────────────
Dr: Tax paid (cash — forcing figure) | Cr: Opening balance
Dr: Closing balance | Cr: P&L (current year charge)
─────────────────────────────────────────────────
```
Formula:
Cash tax paid = Opening Prov + Current year charge − Closing Prov
### Refund Entry
A refund of income tax is a cash inflow. In the ledger:
- Dr: Bank (refund received)
- Cr: Provision for Tax
In the CF Statement, the refund reduces the gross tax paid — show the net figure.
### Indirect Method Presentation
```
Cash generated from operations xx
Less: Income tax paid (net of refund) (xx) ← net figure here
Net CF from Operating Activities xx
```
> If the refund is very significant and relates to an extraordinary item, AS 3 permits separate disclosure — but this is rare in exam problems.