Hi all
one of my client has written off some assets in the last FY. now in this Fy , he has discovered that some of the assets are physically present and in use and so need not be written off. what will.be the impact of the same as per Income tax act?
thanks in advance.
Impact as per Income tax act
Replies (1)
| The difference between book profit and taxable profit is common and arises from specific IT Act provisions. Here is a structured explanation: 1. Reasons for Difference Between Book Profit and Taxable Profit: a) Depreciation: Book depreciation (as per Companies Act Schedule II or Ind AS 16) vs IT depreciation (as per IT Act rates under Section 32 — WDV method at prescribed rates) often differs significantly b) Disallowed Expenses: - Cash payments above Rs. 10,000 — disallowed u/s 40A(3) - Provisions not yet paid (like bonus, PF not paid before due date — disallowed u/s 43B) - Personal expenses mixed with business expenses - Penalties and fines — disallowed u/s 37 c) Exempt Income: Certain book incomes are exempt (LTCG on listed shares up to Rs. 1.25L, dividend income with specific conditions, etc.) d) Specific Additions: Notional income (perquisites, deemed income under Section 2(24)) added to taxable income though not in books 2. Reconciliation Statement: - Start with net profit as per P&L account - Add: Disallowed expenses (cash payments, provisions, personal expenses, depreciation difference) - Add: Notional income deemed under IT Act - Less: IT Act depreciation (higher than book depreciation in early years) - Less: Tax-exempt income - = Taxable business income 3. Deferred Tax: The cumulative timing difference between book and tax treatment creates Deferred Tax Assets (DTA) or Deferred Tax Liabilities (DTL) in the books under AS 22 / Ind AS 12 4. MAT: For companies, if normal taxable income is very low due to IT deductions but book profit is high, MAT @ 15% of book profit under Section 115JB kicks in as a minimum tax floor |
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