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AS 22

nidhi (article-assistant) (47 Points)

16 September 2016

whether prepaid insurance is DTA or DTL as per AS 22? n why?

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9 Replies

Abhimanyu (CA) (316 Points)
Replied 17 September 2016

Thanks for the query, Nidhi,
By Prepaid Ins. I believe you mean Prepaid Ins. Premium,
See to calculate DTA/DTL there has to be timing diff. between allowance of expense from accounting and taxation point of view.
But above expense in not allowed in either of the systems, thus there will not be any rise to timing diff. hence not question of DTA/DTL.
Hope you have an answer, but in case of any issue please revert,
Thanks,
Abhimanyu

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nidhi (article-assistant) (47 Points)
Replied 17 September 2016

Thanks for ur reply..bt in some books ,prepaid expenses are shown as DTL..why so??

ajay (Student) (178 Points)
Replied 17 September 2016

as per income tax act, we can take deduction of insurance premium ful

ajay (Student) (178 Points)
Replied 17 September 2016

as per books of accounts we will claim only the portion of insurance premium pertains to that year as expense i.e after deducting prepaid portion

so we are claiming more deduction in income tax act which ultimately leads to DTL

Abhimanyu (CA) (316 Points)
Replied 17 September 2016

Dear Ajay, could you please provide any reference for full deduction allowance of prepaid ins. premium for a business entity and also on which asset or person it be allowed in full, please help me with any provision or case in this regard,

Sincerely,
Abhimanyu

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ajay (Student) (178 Points)
Replied 17 September 2016

Dear Abhimanyu,

Treatment of Insurance:

In case of buildings: as per section 30 we can claim full deduction

In case of plant, machinery, furniture: as per section 31 we can claim deduction fully

In case of stock in trade: as per section 36(1)(i) we can claim deduction fully

on health of employees: we can claim deduction fully as per section 36(1)(ib) provided it has paid by mode other than cash

In the above sections there is no explanation regarding the treatment of prepaid insurance like we usually did in books of accounts. so we can claim deduction fully

hope your query resolved

Thanks & Regards,
Ajay

Abhimanyu (CA) (316 Points)
Replied 17 September 2016

Thanks for replying, Ajay,
Because such sections do not provide specifically for prepaid exp. I made assumption that such payment be divided in the period covered by ins.
though you seem to be right too, but its just view I and your good se