IND AS 12 : INCOME TAXES

Definitions Concept Insight Examples

Accounting Profit: Accounting Profit is profit or loss for a period before deducting tax expense EXAMPLE: 1
Taxable Profit: Taxable Profit is the profit (loss) as per Income Tax Act, upon which income taxes
are payable(receivable).

Tax Expense (Tax Income):Tax on Accounting Profit (Deferred+ Current)

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Current Tax: Current Tax is Income Tax on taxable profit. Current Tax is consequences of Current
Period recognised in Entity’s Financial Statements.

Deferred Tax: Future Tax Consequences (Deferred Tax Asset/Deferred Tax Liability)

Deferred Tax Liabilities: Income taxes payable in future periods in respect of Taxable Temporary
Differences (TTD). {Shudh Desi: Govt aaj benefit de raha hai kal wapas le lega (Future Tax
Liability= DTL)}

Deferred Tax Assets: are the amounts of Income Taxes Receivable in future periods in respect of
deductible temporary differences, the carry forward of unused tax losses/tax credits.{Shudh
Desi: Govt aaj jyada tax le raha hai to kya hua kal apna waqt aayega aur hum future mei km tax
denge(Future Tax Benefit= DTA)}
EXAMPLE: 2
Tax Base: Carrying Amount of asset or liability for tax purpose

Temporary Difference: Difference between Carrying Amount as per Books of Accounts & Tax
Base (i.e., Carrying Amount as per Tax)
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Taxable Temporary Difference = Results in DTL (Future Taxable Amount)
Deductible Temporary Difference = Results in DTA (Future Deductible Amount)

Exceptions
Items of Current Tax/Deferred Tax recognized in P&L are subject to 2 Exceptions:

An item of Current Tax or Deferred Tax pertaining to OCI should be recognized in OCI
An item of Current Tax or Deferred Tax pertaining to EQUITY should be recognized in EQUITY
 CURRENT TAX & ITS ASSESS DEDUCTIBLE TEMPORARY
UNUSED TAX LOSSES/UNUSED
DIFFERENCE, TAX LOSSES &
RECOGNITION CREDITS: TAX CREDITS:

Entity should recognise deferred tax assets only

DTA recognized to the extent it is probable that Future Taxable

Current Tax: Amount of Income Tax Payable in respect of taxable
when it is probable that taxable profits will be Profits will be available. However, the existence of unused tax
profits/loss for the period.
available in future against which the deductible losses is strong evidence that future taxable profits may not be
temporary differences can be utilised i.e., entity available.
Current Tax Liability: Current and Prior Period Tax to the extent unpaid
has to make sufficient taxable profits in future. In this case, DTA should be recognized to the extent entity has
recognized as Liability. Any excess of this liability over Advance Tax &
The Standard provides three step criteria to be sufficient Taxable Temporary Difference or there is Convincing
TDS is to be treated as Current Tax Liability.
applied in a serial order. other Evidence that sufficient taxable profits will be available.
Example:

Category 1 : Existence of taxable temporary UNUSED TAX LOSSES/UNUSED

differences TAX CREDITS:

The entity at the balance sheet date should see

At the end of each reporting period, the entity should reassess

Current Tax Asset: Amount already paid in respect of Current and Prior
period exceeds amount due.
Determination of Tax Rates: Tax Rates should be based on Tax Rates
whether there are sufficient taxable temporary
unrecognised DTA to the extent it is now probable that future
differences whose reversal pattern matches with
taxable profits will be available, entity should recognise DTA.
the reversal profile of deductible temporary
differences. Example: Improvement in Trading Condition, Tax Planning
Opportunities, etc.
Category 2: Probability of future profits
If it is probable that there will be sufficient taxable
OFFSETTING DTA/DTL
profits, then to the extent of available profits,

enacted or substantially enacted by the end of reporting period. deductible temporary differences should be applied
Offsetting Current Tax Asset/Current Tax Liability: for recognition of deferred tax assets. An Entity should offset only if:
An entity shall offset only if: Usually, enforceable rights
- Usually enforceable right Category 3: Availability of tax planning
Same taxation authority
- Same taxation authority opportunities
Intends to settle on Net Basis
- Intends to settle on Net Basis.

DEF TAX ASSET/LIABILITY &

ITS RECOGNITION METHODS OF RECOGNITION
DTA/DTL should not
DTA DTL be discounted
A DTA should be recognised for A DTL should be recognized for all
Temporary Difference may arise in different circumstances:

all deductible temporary taxable temporary difference except to

difference to the extent probable
that future taxable profits will be
available against which
deductible temporary differences
will be utilised.
the extent DTL arises from:
Initial Recognition of Goodwill
Initial Recognition of A/L in a
transaction which is not a Business
Combination and at the time of
transaction affects neither
i) Existence of Undistributed Profits
ii) Reduction in CA of Investment in Associates to its Recoverable Amount
iii) Changes in Foreign Exchange Rates
An entity shall recognize a deferred tax liability for all taxable temporary differences 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:

Accounting Profit nor Taxable Profit

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.
EXCEPTIONS
Combination and

1. Initial Recognition of Asset/Liability in a transaction which is not a Business
2. At the time of transaction affects neither Accounting Profit nor Taxable Profit.
3. Temporary differences associated with investments in subsidiaries, branches and
associates, and interests in joint ventures
An entity shall recognise a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries,
branches and associates, and interests in joint ventures, to the extent that, and only to the extent that, it is probable that:
i) the temporary difference will reverse in the foreseeable future; and
ii) taxable profit will be available against which the temporary difference can be utilized. (Both conditions have to be satisfied)