ACCOUNTING STANDARD - 22
TAXES ON INCOME
J.P., KAPUR & UBERAI
SCOPESCOPE
J.P., KAPUR & UBERAI
APPLICABLE FROM:
01.04.2001 - Listed enterprises or in the process of issuing equity or debt securities
01.04.2002 - Companies not covered as above
01.04.2003 - All other enterprises.
DEFINITIONSDEFINITIONS
J.P., KAPUR & UBERAI
ACCOUNTING INCOME (LOSS)Net profit or loss for a period as per profit and loss statement.
TAXABLE INCOME (TAX LOSS)Income (loss) for a period determined in accordance with the tax laws.
TAXES ON INCOMETAXES ON INCOME
Accounting income and taxable income for a period are seldom the same.
Differences between the two are on account of :
Permanent Differences Timing Differences
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Permanent DifferencesPermanent Differences
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Permanent differences are those which arise in one period and do not reverse subsequently
For e.g., an income exempt from tax or an expense that is not allowable as a deduction for tax purposes.
Timing DifferencesTiming Differences
Timing differences are those which arise in one period and are capable of reversal in one or more subsequent periods.
For e.g., Depreciation, Sales Tax , Bonus etc., U/s 43B
J.P., KAPUR & UBERAI
TREATMENTTREATMENT
ABC Ltd prepares accounts annually on 31st March. It bought a fixed asset for 150,000 in Ist year which is fully depreciable under Income Tax but has a useful life of 3 years as per books. Assuming that the annual profits for 3 years is 200,000.
Assuming a tax rate of 40%( no surcharge)It leads to a tax saving of 60,000 in Ist year as compared to IInd & IIIrd year. The treatment of Deffered Taxation will be as under:
contd….J.P., KAPUR & UBERAI
TREATMENTTREATMENT
Particulars I II IIIProfit before Depreciation 200 200 200Depreciation as per books 50 50 50Profit before taxes 150 150 150
Less: Tax Expense 20 80 80DEFFERED TAX 40 (20) (20)TOTAL 60 60 60Profit after Tax 90 90 90
DEFFERED TAX LIABILITY 40 20 0
J.P., KAPUR & UBERAI
RECOGNITIONRECOGNITION
For determining the net profit or loss for the period, current tax and deferred tax have to be included.
Deferred tax assets and liabilities are usually measured using the tax rates and tax laws for the time being in force.
Deferred tax assets should be recognised and carried forward only to the extent of the deferred taxes those are realisable in future.
J.P., KAPUR & UBERAI
MEASUREMENTMEASUREMENT
CURRENT TAXAt the amount that is expected to be paid to the taxation authorities.
DEFERRED TAX ASSETS AND LIABILITIES At the tax rates and tax laws that have been enacted at
the balance sheet date.
J.P., KAPUR & UBERAI
DISCLOSUREDISCLOSURE
Disclose major components of deferred tax assets and liabilities.
Deferred tax assets and liabilities should be distinguished from assets and liabilities representing current tax for the period
Disclose nature of evidence supporting recognition of deferred tax assets in the event of there being unabsorbed depreciation or carried forward losses.
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Transitional ProvisionsTransitional Provisions
On first implementation of the standard, the net deferred tax balance accumulated prior to adoption of the standard should be adjusted against revenue reserves.
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