Celebrate CA Day with CAclubindia PRO. Use Code: CADAY10 Subscribe Now!

As-22 deffered tax

Jugal Punjabi (Officer- Finance) (50 Points)

11 May 2012

Hi Friends

Help needed on AS-22 Accounting for Taxes on Income

A ltd ha s made a provision for DTL for F.Y. 10-11 say of Rs. 200,000/- @ Income Tax rate applicable for the respective year (i.e. IT @ 30%+ Surch. @ 7.5%+ E.Cess @ 3%). Subsequently surcharge for corporate assessees was reduced to 5%. Therefore, whether A ltd is required to revise DTL for F.Y. 10-11 by applying surcharge @ 5% and w/off the difference (equivalent to 2.5% reduction in surcharge) to P & L A/c?

Reply
Follow
Share

2 Replies

Giridhar S Karandikar (Team Lead) (7553 Points)
Replied 11 May 2012

No you can't reverse the DTL to the extent of the reduction in surcharge. This is because, DTL is being created by applying the applicable tax rate for that year. In the subsequent year, again iof the DTL is requried to be created, then it will be created by applying the tax rate of that year.

So I don't think ti would be prudent to reverse the DTL on account of change in surcharge in teh subsequent eyar.

Jugal Punjabi (Officer- Finance) (50 Points)
Replied 11 May 2012

Thanks Mr. Giridhar for your reply.

I think when we follow the Balance sheet approach for DTL, wherein we work out DTL/DTA by applying current rate to the accumulated timing differences of the previous years and charge the difference between the opening balance and amount so arrived in the current year,to P&L A/c, the difference on account of change in rate of surcharge will be automatically taken care of.

However, if we follow P&L approach for DTL/DTA, wherein we work out DTL/DTA by applying the current rate to the timing difference for the year only and then either adding/subtracting the same from the opening DTL/DTA,the opening balance should be adjusted to the extent of change in rate of surcharge.