The listed companies would have to prepare the quarterly financial results for the quarter ended 30 September very soon, and hence the decision have to be taken by them as to the income tax rates they opt for.

As explained in my previous article “Analysis of Taxation Laws (Amendment) Ordinance 2019” dated 22nd September 2019, the domestic companies would have to take decision on whether to opt for paying tax at reduced base rate of 22%. However, this will come with a rider – they will not be allowed to avail various deductions/exemptions currently available under the Income Tax Act. Even MAT credit available will be rendered useless once the above option is chosen by the company (Refer article – “ MAT Credit Clarification issued by CBDT – Impact Assessment” dated 3rd October 2019).

One question that would need immediate answers would be the accounting for the above change, should the listed entity decide to take on the reduced tax route? We will discuss on the accounting and disclosure aspect – for the quarterly financial results for the six months ended 30 September 2019 (Ind AS based).

This is more applicable for the listed entities who doesn’t enjoy any major deduction/exemptions, and hence for them the decision is simple – take the reduced tax rate route.

The quarterly financial results are majorly governed by the provisions given in Indian Accounting Standard 34 – “Interim Financial Reporting”. The accounting questions that would need to be examined are described below:

a) How to compute the tax charge – current tax and deferred tax charge for the current quarter ending 30 Sep 2019 – Q2 (under the revised rate structure)?

b) Will the tax charge for the preceding quarter ended 30 June 2019 (calculated under the then applicable income tax rate – base rate of 30%) need to be restated/revised for the financial result preparation?

c) How will the charge/credit for re-measurement of the opening deferred tax balance as at 1st April 2019 (at the revised tax rate – base rate of 22%) be accounted for? Will the entire credit/charge accounted in Q2 or amortised over the financial year ending 31 March 2020?

d) Similarly, if the MAT credit is outstanding as at 1st April 2019, how will the charge for write off of the same be accounted for? Will the entire charge accounted in Q2 or amortised over the financial year ending 31 March 2020?

Let’s consider an example of a listed company with the following particulars:

Opening Deferred Tax (DT) liability (1.4.2019) – Rs 2,044 Crores

Extract of financial results for the quarter ended 30th June 2019: (Rs Crores)

Particulars QE 30.06.19 QE 30.06.18
Profit Before tax 4,812 4,299
Tax expense (@stat base tax rate – 30%)

(i) Current tax

1,563 1,398

(ii) Deferred tax

74 84
Total Tax charge 1,637 1,482
Profit after tax 3,174 2,819

Profit before tax for the half year ended 30th September comes to Rs 9,600 Crores. Estimated profit for the financial year is Rs 18,500 Crores.

Considering the above, let’s answer the above raised questions:

a) Tax charge for Q2 Sep 2019 (under revised tax regime):

Assessment: As per Ind AS 34: Para 30c– “income tax expense is recognised in each interim period based on the best estimate of the weighted average annual income tax rate expected for the full financial year.”

Hence, the tax expense for the half year ended 30 Sep 2019 will be computed as under:

Tax expense expected for whole year ……(i)

– Estimated taxable profit for whole year


– Tax expense expected (@25.17%)

Now, based on weighted average rate:
Tax expense for the half year – 30 Sep 2019



Tax charge for Q2 will be derived as under:

Tax expense for the half year – 30 Sep 2019 (A) 2,416
Tax expense for the quarter – 30 June 2019 (B) 1,637
Derived tax expense – Q2 30 Sep 2019 (A) – (B) 779

b) Will Q1 tax expense have to be restated?


As per Ind AS 8 “an entity shall correct material prior period errors retrospectively in the first set of financial statements approved for issue after their discovery by restating the comparative amounts for the prior period(s) presented in which the error occurred…”

The subsequent change in the income tax rates cannot be classified as a prior period item and hence, no restatement is required in the above case.

c) Impact of re-measurement of opening deferred tax balance as at 1st April 2019:

The Opening Deferred Tax (DT) liability (1.4.2019) based on the erstwhile tax rate of 34.944% was Rs 2,044 Crores. On re-measurement at the revised tax rate – 25.17% the deferred tax liability balance comes to Rs 1,472 Crores.

Now, how the differential deferred tax credit of Rs 572 Crores needs to be accounted for in the quarterly financial result?

There are two approaches in practice to deal with the above situation:

1. The estimated rate does not include the impact of re-measuring closing deferred tax balances at the end of the year. Under this approach, the impact of re-measuring these balances is recognised immediately in the interim period in which the change in rate is enacted or substantially enacted.

2. The estimated rate includes the impact of re-measuring closing deferred tax balances at the end of the year. Under this approach, the impact of re-measuring deferred tax balances is recognised as the re-estimated ‘effective’ annual tax rate is applied to interim pre-tax profits.

The financial results for the quarter (QE) and half year (HYE) under both approaches are provided below for the given scenario for understanding:

Particulars OPTION -1 OPTION -2
HYE 30.09.19 QE 30.09.19 HYE 30.09.19 QE 30.09.19
Profit Before tax 9,600 4,788 9,600 4,788
Tax charge on above (A) 2,416 779 2,416 779
Reversal of opening DTL (B) (572) (572) (286) (286)
Total tax charge (A) + (B) 1,844 207 2,130 493
Profit after tax 7,756 4,581 7,470 4,295

Under Option 1, the entire credit for re-measurement of opening DTL is taken in the interim period wherein the change in rate of income tax has been effected. On the other hand, under option 2, the impact for the re-measurement has been effectively amortised over the financial year.

The author believes that option 1 is more appropriate since it reflects the closing deferred tax as at the reporting period – as per the income tax rate applicable.

d) MAT Credit:

Although not applicable in this example, the solution is same as (c) above.

Your feedback are warmly welcomed and will be highly appreciated.

Author Bio

Qualification: CA in Job / Business
Company: Khadim India Limited
Location: kolkata, West Bengal, IN
Member Since: 13 Sep 2019 | Total Posts: 5
Intrigued reader and interpreter of tax laws, accounting standards - with 10 years experience in Deloitte handling listed companies audit/tax and currently heading internal audit of footwear listed company in Kolkata View Full Profile

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