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AS 22 and ASI 3

CA Sandeep Thakur (Managment Trainee) (188 Points)

26 May 2010

Dear all ,

I have encountered a problem while making the deferred tax of a client . the client is operating under the tax holiday under section 80-IC .The enitty is tax free 100% for first five year and 30% profit are exempt for the next five year

I have following queries:

1.On the Reporting Date ie 31.03.2010 , we need to make out the Deferred tax assets./liab. only on the temporary differences which will be come out after setting off the temporary diff which will be reveresed in the same tax holiday period.

however , as the company is in the tax holiday for first 5 year for 100 % and 30% for next year ,

so MY PROBLEM IS TO WHETHER FOR THE PERIOD AFTER THE FIRST FIVE YEAR THE REVERSAL IN SUCH PERDIOD IS TO BE TAKEN INTO CONSIDARATION .......

WAITING REPLY...................

Regards

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4 Replies

CA Shantanu Goyal (Practicing CA) (122 Points)
Replied 27 May 2010

dear sandeep

as per ASI we need not to recognize any deferred tax which would be reversed during the tax holiday period.

IN your case the deferred tax arising on 31.03.2010 and expected to be reversed during 100% tax holiday period need not to recognized at all

AND deferred tax which are expected to be reversed during 30% exemption period you need to recognize only 70% of deferred tax

can be under stood as suppose you are having a liability of Rs. 100L on account of deferred tax which would be reversed in the said five years of 30% exemption than you should recognize liability of Rs. 70L only

can verified as under

Year Reversed amount Reversal due to exemption

1 20L 14L

2 20L 14L

3 20L 14L

4 20L 14L

5 20L 14L

Total Reversal (14L*5) = 70

2 Like

CA Sandeep Thakur (Managment Trainee) (188 Points)
Replied 28 May 2010

thanks sh*tanshu 4 ur valuable inputs

Also i would like to ask , if as in my case if there will be no reversal in the upcoming future years in the tax holiday period. The deferred tax liablity will only be created in the upcoming 12 years then

if there will any treatment i needed to be done in the books of accounts as on 31.03.2010

Regards

Sandeep

CA Shantanu Goyal (Practicing CA) (122 Points)
Replied 29 May 2010

Dear Sandeep

I didn't get your query

In your case there are following possibilities

1. If deferred tax is reversed after tax holiday period: In this case you need to recognized DTL and if you have DTA you need to examine that whether there is reasonable certainty to sufficient future profit for reversal of DTA

2. If deferred tax is reversed in tax holiday period: In this case if reversal is within 100% tax holiday period than no deferred tax will be recognized and if reversal is within 30% tax holiday period then 70% will be recognized.

divva (Industrial Trainee @ Ashok Leyland) (348 Points)
Replied 18 July 2012

Dear Sir, If i have a asset group that reverses during the tax holiday period i need not create DTL But what in case of additions to asset which extends beyond the holiday period?? Should i consider additions & create DTL??