AS-22: ACCOUNTING FOR TAXES ON INCOME
Meaning and Glance to Its Recognition, Presentation & Disclosures.
MEANING:
Taxable income is calculated in accordance with tax laws. In some circumstances, the requirements of these laws to compute taxable income differ from the accounting policies applied to determine accounting income. The effect of this difference is that the taxable income & accounting income may not be the same. Such a Difference results in DEFFERED TAX as ASSETS or LIABILITY.
Difference is Due to two Reasons:
1) Timing Difference: Are Difference between Accounting & taxable income that originate in one period & are capable of reversal in one or more subsequent period.
2) Permanent Difference: Are Difference between Accounting & taxable income that originate in one period & do not reverse in subsequently.
RECOGNITION:
Tax expense for the period, comprising current tax and deferred tax, should be included in the determination of the net profit or loss for the period. Such recognition will be based on matching concept resulting in timing differences.
Permanent differences do not result in deferred tax assets or deferred tax liabilities.
PRESENTATION & DISCLOURES:
An Enterprise should offset deferred tax assets and deferred tax liabilities if:
i) The enterprise has legally enforceable right to set off assets against liabilities representing current tax; and
ii) The deferred tax assets and the deferred tax liabilities relate to taxes on income levied by the same governing taxation laws.
Deferred tax assets and liabilities should be distinguished from assets and liabilities,it should be disclosed under a separate heading in the balance sheet of the enterprise, separately from current assets and current liabilities.
The break-up of deferred tax assets and deferred tax liabilities into major components of respective balance should be disclosed in the notes to accounts.
Examples:
TIMING DIFFERENCES: Expenditure of the nature of section 43B, where book & tax depreciation differ, Differences in amortization of expense of section 35D,35DD etc.
PERMANENT DIFFERENCES: Tax laws allows only part of an item of expenditure, the disallow amount would result in permanent differences.
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