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Accounting Standard - 22

Accounting for Taxes on Income

2 Illustration .3 .‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Introduction Objective Scope Definitions Recognition Re-assessment of unrecognised Deferred Tax Assets Measurement Review of Deferred Tax Assets Presentation and disclosure Transitional Provisions Examples of Timing Difference Illustration .1 Illustration .

2001 ‡ Mandatory in Nature ‡ Applicable for all enterprises ± For accounting periods commencing on or after 1st April 2003 .INTRODUCTION ‡ Comes into effect from 1st April.

tax should be accounted in the period in which corresponding revenue and expenses are accounted . .OBJECTIVE ‡ Prescribe accounting treatment for taxes on income ‡ Tax on income is determined on the principle of accrual concept ‡ According to this concept .

which are based on taxable income ‡ Does not cover Dividend Distribution Tax. .Scope ‡ Taxes on income include all domestic and foreign taxes.

Definition ‡ Accounting income (loss) is the net profit or loss for a period. as reported in the statement of profit and loss. . ‡ Taxable income (tax loss) is the amount of the income (loss) for a period. determined in accordance with the tax laws. based upon which income tax payable (recoverable) is determined. ‡ Tax expense (tax saving) is the aggregate of current tax and deferred tax charged or credited to the statement of profit and loss for the period. ‡ Current tax is the amount of income tax determined to be payable in respect of the taxable income (tax loss) for a period. before deducting income tax expense or adding income tax saving.

‡ Deferred Taxes are µIncome Tax¶ which arise in one period but because of Timing Difference will have to be actually paid in later years. ‡ This difference can be classified into ‡ Timing differences -TD.Differences between TI and AI for a period that originate in one period and are capable of reversal in one or more subsequent periods .

Permanent differences -PD.are the differences between TI and AI for a period that originate in one period and do not reverse subsequently. .

70 cr Timing Difference Rs. 10 cr No Tax effect . 20 cr Tax Expense Deferred Tax (substantively enacted rates /law) Average rate ? Rs.Deferred Tax Taxable Income Accounting Income As per P&L A/c As per IT Return Current Tax (applicable rate/law) Rs. 100 cr Permanent Difference Rs.

‡ Tax expense ± = Current tax + Deferred Tax ‡ Tax expense should be included in the determination of net profit or loss for the period .

Deferred Tax Liability ‡ Is recognized for temporary differences that will result in taxable amount in feature years .