INDAS & GST

Hey Yasaswi! Here’s a quick explanation on consolidation of current and deferred tax under IND AS and how it links with GST (indirectly, in terms of tax accounting):

1. Current Tax:

• Current tax is the amount of income tax payable or recoverable for the current year as per the Income Tax Act.

• It is recognized in the Profit & Loss (P&L) statement as an expense or income for the period.

• It is calculated on the taxable profit for the period (which excludes GST since GST is not an income tax).

2. Deferred Tax:

• Deferred tax arises due to temporary differences between the carrying amount of assets/liabilities in the financial statements and their tax base.

• It represents the tax effect of these temporary differences that will reverse in future years.

• Deferred tax assets or liabilities are recognized in the Balance Sheet under non-current assets/liabilities.

3. Consolidation under IND AS 12 - Income Taxes:

In the Consolidated Financial Statements:

• Current tax of each group company is aggregated and presented in the consolidated P&L.

• Deferred tax assets/liabilities of each group company are also aggregated and presented net in the consolidated Balance Sheet.

• Intra-group current tax balances (like tax paid by one group company on behalf of another) should be eliminated on consolidation.

• Similarly, deferred tax relating to intra-group transactions should also be considered carefully.

4. Impact of GST:

• GST is an indirect tax and does not impact income tax calculation directly.

• GST paid on purchases can be claimed as Input Tax Credit (ITC) and is not an expense.

• Hence, GST does not create deferred tax differences.

• However, any non-claimable GST (say, on certain expenses) will form part of the cost and affect the taxable profit indirectly.

Summary: