The relevant Accounting Standards relating to Income Taxes are the following:-
a. INDAS 12
b. IAS 12
c. AS 22
There is no major difference between INDAS 12 and IAS 12.Therefore, the following descriptions relate to both INDAS 12 and IAS 12.
Statements of Profit and loss and other Comprehensive income, Statement of changes in Equity and Statement of Financial position are the new names of Financial Statements as per IND AS and IAS. In India, Income Tax Act 1961 and other countries, relevant Income Tax Acts are applied in applying this standard.
Significance of this Standard
Differences between the Net Profit as per Financial Statements and Profit Calculated as Income Tax Act 1961 is one of the main reason to introduce this standard. Business should recognize future tax liability/future tax asset with respect to current conditions. Therefore this standard helps to recognize future Income Tax liability/Income Tax asset With respect to current conditions
a. To prescribe Accounting treatment for Income Taxes
b. To Prescribe the accounting for current and future tax consequence
A. This Standard shall be applied in accounting for income taxes.
B. As per this Standard, income taxes include all domestic and foreign taxes which are based on taxable profits
C. This Standard does not deal with the methods of accounting for government Grants or Investment Tax Credits.
3. Tax Expense (Income Tax).
As per this Standard Tax expense may be
A.Current Tax (Amount of Income Tax payable in respect of taxable profit as per Income Tax Act 1961).
B. Deferred Tax (It is an accounting measure used to match the tax effect of transaction with their accounting impact)
3A. Deferred Tax May be Deferred Tax or Deferred liability
4.Tax Base. (Carrying Amount as per Tax Law)
To find out Deferred Tax Asset or Deferred Tax Liability,
First, You have to find out Tax Base as follows—-
A.Tax Base of Asset=Carrying Amount less Future taxable amounts as per Income Tax Act 1961(Income from Business or Capital Gain or Other sources) +Future
deductible amounts as per Income Tax Act 1961( As per Income Tax Act Heads Business or Capital Gains or Other Sources).
B. Tax base of liability= Carrying Amount less Future deductible amounts as per Income Tax Act 1961+Future taxable amounts as per Income Tax Act 1961.
C. Tax base of liability for Revenue received in advance= Carrying Amount less Amount of revenue that will not be taxable in future periods as per Income Tax Act 1961.
5. Temporary Difference.
To find out Deferred Tax Asset or Deferred Tax Liability, You have to find out Taxable Temporary Difference or Deductible temporary difference as follows—-
If Carrying Amount>Tax Base, Then Taxable temporary difference will happen in the case of Assets. Then Deferred Tax Liability will be recognized.
If Carrying Amount>Tax Base, Then Deductible temporary difference will happen in the case of Liabilities. Then Deferred Tax Asset will be recognized.
If Carrying Amount<Tax Base, Then Deductible temporary difference will happen in the case of Assets. Then Deferred Tax Asset will be recognized.
If Carrying Amount<Tax Base, Then Taxable temporary difference will happen in the case of Liabilities. Then Deferred Tax Liability will be recognized.
Carrying Amount=Tax Base ,No DTA or DTL
6.Calculation Of DTA OR DTL.
Then you have to find out Deferred Tax Asset (DTA) or Deferred Tax Liability (DTL) as follows
DTA= Deductible temporary difference*Tax Rate
DTL= Taxable temporary difference*Tax Rate.
The IAS 12 requires that DTL or DTA should be measured at tax rates as applicable in the period during which the asset is recovered or liability is settled i.e. based on tax rates & laws enacted or substantially enacted at the end of reporting period
A. Normally both current & deferred taxes are charged to the SOPL.
Except in the following cases
a. Additional deferred tax that arises on the revaluation is recognized in Other Comprehensive Income.
b. Current tax and deferred tax that relates to items that are recognized ,in the same or a different period:
i. In Other Comprehensive income ,shall be recognized in Other Comprehensive Income
ii. Directly in Equity ,shall be recognized in Equity
c. As an Adjustment to Goodwill in the case of Business Combination
B. Recognize in the Balance sheet /Statement of Financial Position as follows
I. Non-Current Assets
Deferred Tax Assets
II. Current Assets
Current Tax Assets
III. Non –current liabilities
Deferred tax liabilities
IV. Current liabilities
Current tax liabilities
8. Consider the presentation and offsetting of Current and deferred tax
9. Disclose the details of current and deferred tax