IND AS 12 : INCOME TAXES
DEFINITIONS:
1. Accounting Profit: profit or loss for a period before deducting tax expense.
2. Taxable Profit: profit as per IT Act, upon which incometaxes are payable(receivable).
3. Tax Expense (Tax Income): Tax on Accounting Profit (Current tax ± Deferred tax)
4. Current Tax: Current period Income Tax on taxable profit.
5. Deferred Tax: Future Tax Consequences (Deferred Tax Asset/Deferred Tax Liability)
6. Deferred Tax Liabilities: Income taxes payable in future periods in respect of TTD)
7. Deferred Tax Assets: Income Taxes Receivable in future periods in respect of DTD, the
carry forward of unused tax losses/taxcredits.
8. Tax Base: Carrying Amount of asset or liability for tax purpose.
9. Temporary Difference: Difference between Carrying Amount as per Books of Accounts &
Tax Base
Taxable Temporary Difference Results in DTL (Future Taxable Amount)
Deductible Temporary Difference Results in DTA (Future Deductible Amount)
DTA / DTL Recognition in PL or OCI or Equity
1. An item of Current Tax or Deferred Tax pertaining to P/L should be recognised in P/L
2. An item of Current Tax or Deferred Tax pertaining to OCI should be recognised in OCI
3. An item of Current Tax or Deferred Tax pertaining to EQUITY should be recognized in Equity.
Concept Talks:
CA of Asset > Tax Base DTL CA of Liability > Tax Base DTA
CA of Asset < Tax Base DTA CA of Liability < Tax Base DTL
When there is no tax consequences, then DTA/DTL should not be created.
If no DTA/DTL iscreated, then,
Carrying Amount of Asset should be equal to tax base of asset
Carrying Amount of Liability should be equal to tax base of liability
CURRENT TAX AND ITS RECOGNITION:
1. Current Tax: Amount of Income Tax Payable in respect of taxable profits/loss for the period.
2. Current Tax Liability: Current and Prior Period Tax to the extent unpaid recognised as
Liability. Any excess of this liability over Advance Tax & TDS is to be treated as Current
Tax Liability.
3. Current Tax Asset: Amount already paid in respect of Current and Prior period exceeds amount
due.
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IND AS 12 : INCOME TAXES
4. Determination of Tax Rates:
Tax Rates should be based on Tax Rates enacted or substantially enacted by the end of reporting
period.
RECOGNITION OF DEFERRED TAX ASSET & DEFERRED TAX LIABILITY:
1. Deferred Tax Liability:
A DTL should be recognised for all TTD except to the extent DTL arises from:
a. Initial Recognition of Goodwill
b. Initial Recognition of Asset/Liability in a transaction which is not a Business Combination
and at the time of transaction affects neither Accounting Profit norTaxable Profit.
An entity shall recognise DTL for all TTD associated with investments in subsidiaries, branches
and associates, and interests in joint ventures, except to the extent that both of the following
conditions are satisfied: EitherbymajorityvotingRights on Agreement
i. the parent, investor or venturer is able to control the timing of the reversal of the
temporary difference; and
ii. it is probable that the temporary difference will not reverse in the foreseeable future.
Eitherfuturesufficient taxabletemporary Difference
2. Deferred Tax Asset: on SubbicientfuturesufficienttaxableProfit
TaxPlanning
A DTA should be recognised for all DTD to the extent probableopportunities
that future taxable profits will
be available against which DTD will be utilised.
Exception: Initial Recognition of Asset/Liability in a transaction which is not a Business
Combination and at the time of transaction affects neither Accounting Profit nor Taxable Profit.
An entity shall recognise DTA for all DTD arising from investments in subsidiaries, branches and
associates, and interests in jointventures, to the extent that, and only to the extent that, it is
probable that both of the following conditions are satisfied:
i. the temporary difference will reverse in the foreseeable future; and
ii. taxable profit will be available against which the temporary difference can be
utilised.
ASSESS DEDUCTIBLE TEMPORARY DIFFERENCE, TAX LOSSES & CREDITS:
Entity should recognise DTA only when it is probable that taxable profits will be available in future
against which the DTD can be utilised i.e., entity has to make sufficient taxable profits in future.
The Standard provides three step criteria to be applied in a serial order:
1. Criteria No. 1 : Existence of taxable temporary differences
2. Criteria No. 2: Probability of Sufficient future taxable profits
3. Criteria No. 3: Availability of tax planning opportunities
For example, taxable profit may be created or increased by:
a) electing to have interest income taxed on either a received or receivable basis
b) selling an asset that generates non-taxable income (such as govt bond) in order to
purchase another investment that generates taxable income.
c) deferring the claim for certain deductions from taxable profit;
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IND AS 12 : INCOME TAXES
UNUSED TAX LOSSES/UNUSED TAX CREDITS:
DTA recognised to the extent it is probable that Future Taxable Profits will be available. However,
the existence of unused tax losses is strong evidence that future taxable profits may not be
available.
In this case, DTA should be recognised to the extent entity has sufficient Taxable Temporary
Difference or there is Convincing other Evidence that sufficient taxable profits will be available.
Following are example of convincing other evidence:
1. Losses result from identifiable causes which are unlikely to occur
2. Tax Planning Opportunities
3. Probability of Taxable Profits before expiry.
REASSESSMENT OF UNRECOGNISED DTA:
At the end of each R.P., the entity should reassess unrecognised DTA. To the extent it is now
probable that future taxable profits will be available, entity should recognise DTA.
Example: Improvement in Trading Condition, Tax Planning Opportunities, etc.
DETERMININATION OF TAX RATES:
DTA/DTL shall be measured at:
a. Tax Rates expected to apply to the period when asset is realised or liability is settled.
b. Based on Tax Rates enacted or substantially enacted by the end of reporting period.
IMPORTANT POINTS:
1. DTA/DTL should not be discounted
2. CA of DTA reviewed at each reporting end
3. To reduce CA of DTA if it is not probable that sufficient taxable profits will be available.
Later Any such shall be reversed to the extent it is probable that sufficient future
taxable profits will be available.
OFFSETTING DTA/DTL
An entity shall offset only if:
1. Legally enforceable rights
2. Same taxation authority
3. Intends to settle on Net Basis.
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