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provision for income tax

ayush (Articled Assistant) (73 Points)

23 May 2011

How provision for income tax is clculate in balance sheet of a company? ,in case of a loss?

& will unabsorbed losses & depreciation be considered for prov. for income tax in a company's balance sheet?

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7 Replies

(Guest)

In case of loss, calculate profit as per the income tax act after disallowing various expenses. and then on this profit provision will be calculated.

But book profit as per MAT should be calculated to be on safer side. If as per MAT provisions there results book profits then prov. as per MAT liability will have to be made.

yes unabsorbed losses and depreciation will have to be considered for calculating prov.

ayush (Articled Assistant) (73 Points)
Replied 24 May 2011

Thank u mam. But what would happen if it comes loss even after disallowing expenses?& what ia the nee d of provision of deffered tax liability if probision for it is calculated after disallowing expenses and taking current year depreciation into effect?

CA NITUL MEHTA (KPMG-Senior Consultant-International Tax ) (236 Points)
Replied 02 June 2011

One thing i would like to add to the above anser is for tax liability under normal provisions of income tax axt losses and unabsrbed depreciation is taken according to income tax records

and while calculating tax liability under MAT accumilated business loss or accumilated depreciation loss according to books of accounts maintained are taken

CA NITUL MEHTA (KPMG-Senior Consultant-International Tax ) (236 Points)
Replied 02 June 2011

The need for Deffered tax liability of asset arises because camparision of two diffrent profits are done which are as follows:

a) current tax : tax laibility according to income tax act after all adjustments under that act, say it as A b) Total tax expense: in present tax structure 30% of 18.5% (MAT) of profit shown as per books of acounts maintained as per provisions of companies act or say any other law for the time being. c) the diffrence between this total tax expense and current tax is deffered tax which may be asset of a liability, which can be further divided in to deffered tax arising due to permenant diffrences between IT act and the books, and the other one arising due to temparary diffrences between the same, and example for this is diffrence in depreciation rates as per IT act and companes act.. permenant diffrences are not adusted and left out in total tax expense only but temparary diffrences are adjusted as DTA OT DTL.

CA NITUL MEHTA (KPMG-Senior Consultant-International Tax ) (236 Points)
Replied 02 June 2011

The concept behind the deffered tax is entities must be taxed on the income which they are shwoiing in the current year simultanoulsy rather than taxing it in the year in which it pays the tax actually