Please provide me the whole concept of as -22 (deferred tax)
- 1 Answers
- 5603 Views
- I also Faced
- E-Mail Answers
Answer Posted / sudhanshu jaiswal
As-22 Accounting for Taxes on Income - Brief Note
Accounting for Taxes on Income :
What is the Object of this standard?
In number of cases, the accounting income is different from taxable income that is profit as per Profit & Loss account is different compared to Income calculated in Statement of Total Income for calculating tax liability. The reasons are as follows:
1. There are some items which are debited in profit and loss account which are not allowed as expenses as per Income Tax Act for calculating tax liability. For e.g. We have debited Rs.60,000 as payment to contractor but we have not deducted tax on it, so the result is it will get added back in Statement of Total Income that is not allowed as expenses u/s 40(a)(ia).
2.
3. There are some expenses which are wholly debited in Profit and loss account but are allowed as expenses in part or amortized over some years. For e.g. Preliminary expenses are entirely debited to the Profit & Loss account but as per section 35D of Income Tax Act are spread over time for deduction that is not entirely allowed in the year in which it is incurred.
Above differences are of two types.
1. Timing Difference
2. Permanent Difference
To calculate and recognising such difference in Financial Statment is an object of this standard.
What is Timing Difference?
Difference between taxable income and income as per Profit & Loss account which is time being in nature and will get reversed in subsequent period. For e.g. as discussed above preliminary expenses u/s 35D is debited entirely in P& L but is allowed entirely in specific number of years, that is it is amortised over number of years but finally it is allowed but in parts in every years, say 5 years. So Rs.100 (preliminary expenses) debited entirely in P&L but is allowed in 5 equal installments for 5 years that is Rs.20 every year. At the end of 5 years, entire Rs.100 is allowed.
What is Permanent Difference?
Difference between taxable income and income as per P&L which is permanent in nature and will not get reversed in subsequent years.
In short, Taxable income is calculated in accordance with the tax laws. In some circumstances, the requirements of these laws to compute taxable income differ from the accounting policies applied to determine income as per P&L.
Permanent difference does not result in deferred tax asset or liability.
Give an example of Timing Difference and explain it in detail.
Depreciation:
Depreciation method followed in books is SLM in which equal amount of depreciation is charged to P&L. For e.g. Cost of Asset is Rs.10,000/-. Useful life of asset is 10 years. So the amount of depreciation to be charged every year is Rs.1,000/- (10,000 / 10). At the end of 10th year, the book value of asset will be nil.
Depreciation method followed for tax purpose is WDV. Under this method, the amount of depreciation is decreasing every year. Say for e.g. the rate is 10% and the cost of asset is Rs.10,000/-. Now, for first year depreciation is Rs.1,000/- (10,000 x 10%). Now, the written down value is Rs.9,000 (10,000 – 1,000). Next year 10% of 9,000 is depreciation that is Rs.900/- and the WDV is 8,100/- (9000 – 900). The book value of the asset will be Nil after some years.
Now, the depreciation for second year under accounting policies (SLM) will be Rs.1,000/- while as per income tax calculation (WDV) is Rs.900, this difference is due to depreciation is timing difference. At the end of useful life of the asset the depreciation is equal to cost but year wise amounts are different under both system. This is a timing difference.
What is the meaning of Deferred Tax Asset?
Deferred Tax Asset arises when the income as per Income tax Act is higher than the income as per Profit & Loss account. Therefore, tax to be paid is more due to higher income as per Income Tax Act but actual income as per Profit & Loss account is less. If one has considered income as per Profit & Loss for tax liability calculation than the tax payable will be less. This difference of tax liability due to difference in income as per Profit & Loss account and income as per Income Tax Act is Deferred Tax Asset.
What is the meaning of Deferred Tax Liability?
Deferred Tax Liability arises when the income as per Income tax Act is lower than the income as per Profit & Loss account. Therefore, tax to be paid is less due to lower income as per Income Tax Act but actual income as per Profit & Loss account is more. If one has considered income as per Profit & Loss for tax liability calculation than the tax payable will be higher. This difference of tax liability due to difference in income as per Profit & Loss account and income as per Income Tax Act is Deferred Tax Liability.
How to measure the deferred tax asset and liability?.
Deferred tax assets and liabilities should be measured using the tax rates and tax laws prevailing at the time of balance sheet date.
Deferred tax should be measured using the regular tax rated for companies even if company pays tax u/s 115JB (MAT).
What is the requirement of this standard?
This accounting standard requires recognition of deferred tax for all timing differences. This is based on the principle that the financial statement for a period should recognize the tax effect, whether current or deferred, of all the transactions during the year.
When deferred tax asset / liability should be recognized?
Whenever the income as per Income Tax asset is lesser than the income as per Profit & Loss Account, the deferred tax liability should be calculated and recognized in financial statement. But for recognizing deferred tax asset, there is a condition given in the standard. Deferred tax asset should be recognized and carried forward only if there is certainty that there will be sufficient future taxable income (higher income as per Income Tax Act compared to Profit & Loss account) against which such deferred tax asset can be realized.
In short there should be certainty that in future, there will be enough of deferred tax liability will arise so against which the current deferred tax asset will be adjusted.
How to make disclosure / presentation of deferred tax asset / liability in financial statement?
Deferred tax asset or liability should be distinguished from assets and liabilities representing current tax for the period.
Deferred tax asset and liability should be disclosed under a separate heading in the balance sheet separately from the current assets and current liabilities.
Deferred tax asset or deferred tax liability is a timing difference shown in P&L. the other effect is in balance Sheet
In Balance Sheet:
Deferred tax asset should be disclosed separately after the head ‘Investments’ and deferred tax liability should be disclosed separately after the head ‘Unsecured Loans’.
In Notes to Accounts:
The break up of deferred tax assets and liabilities into major components should be disclosed in notes to accounts.
Some more examples of Timing Differences.
Disallowance u/s 43B of Income Tax Act – Expenditure of nature mentioned in section 43B )e.g. taxes, duties, cess, fees, etc.) accrued in P& L on mercantile basis but allowed for tax purpose in subsequent years on payment basis.
• Disallowance u/s 40(a)(ia) – payment to resident / non-resident accrued in P & L on mercantile basis but allowed for tax purpose u/s 40(a)(ia) when tax is deducted and paid to the Government.
•
• Provision made in P & L in anticipation of liability that is in advance by forecasting liability, where the relevant liabilities are allowed in subsequent years when they are crystallized that is when they actually arises with definite amount. (provision for expenses)
•
• Expenses amortised in the books over a period of years but are allowed for tax purpose wholly in the first year.
• Amortisation for tax purpose is over a longer or shorter period like Preliminary expenses (Section 35D)
• Income credited to Profit & Loss account but treated only in subsequent years. E.g. conversion of capital asset into stock –in-trade but gain calculated in the year in which stock is sold.
| Is This Answer Correct ? | 0 Yes | 0 No |
Post New Answer View All Answers
what was the rate of duty i have to pay if i want to import 1) lubricants(engine oil, etc) 2) grease 3) v-belts(rubber belts used in machines, cars, etc)
Are woollen Blankets (Rugs) taxable under CST ? Can unregistered party sell it.
updated rates of sales tax & VAT in Maharashtra
how can I know the status of the service tax filing of my organisation when I don't have any details except St number. I want to know till what date the returns are filed etc as I have recently joined.
in gujarat. whether Vat is applicable if H form issue ?
why is service tax set off is consider while calculating wct tds
hi which form issue again ogs purches & sales ? which is the tax rat we issue c form?it's cst3% is avelabe to issue the c-form?
Beginning Balance, Dec. 31, 20xx Creditable Income Tax 211,829.00 Income Tax Payable (132,808.00) > Balance 79,021.00 ITR (1st Quarter) - Jan. 31, 2016 - Mar. 31, 20xx Normal Tax (30% of Taxable Income) 2,205.02 MCIT (2% of Gross Income) 7,865.71 Aggregate Income Tax Due (Normal Tax vs. MCIT whichever is hihger) 7,865.71 Less: Tax Credits/Payments Prior Years Excess Credits 79,021.00 Creditable Tax Withheld - 79,021.00 Tax Payable, per return (71,155.29) What should be the entry in my book to record the above transactions? Thank you!
How will you calculate house rent allowance (hra)?
wct amount deducted by main company .that amount will be returned Subcontractor?If yes,how process is given me.
over all details about tax what is mean by headge fund and detail explanation?
interest paid to bank rs. 15000 in connection with overdraft obtained for paying dividend.
What is US Tax Accounts? Can I get any information where from I take full knowledge about US Taxation?
How treat TDS & TCS in manual or Tally 9 softwere ?
1. What is a bad credit score? 2. What does my credit score mean? 3. Can I check my Vantage credit score range online? 4. Should I have perfect credit score, that is, above 800 credit score? 5. With a 600 credit score, how to improve my credit rating score? 6. How to raise my credit score if I have 500 credit score? 7. How to increase your credit rating score quickly? 8. How can I find out my credit rating score for free? 9. Home Equity Loans ? 10. Calculate Mortgage? 11. Mortgage Payment? 12. Mortgage Payment Problems? 13. Other Mortgage Questions? 14. What is Home Loan Modification? 15. What is the entry for deprecation? 16. What is Merger? What is Acquisition? What are motive behind mergers And acquisitions? 17. What is Demat Account? what is the use of it? 18. What is EPS? 19. What is the difference between Risk, Threat & Hazard? 20. what is minority interest? 21. what is portfolio Saint? 22. What is the Difference between hire purchase and a finance Lease? 23. What is Demat Account? what is the use of it? 24. Up to what time we can show TDS Receivables under Advance Income Tax A/c? 25. WHAT IS PROSPECTUS? 26. WHO ARE THE PROMOTERS? 27. WHAT IS DERIVATIVE? 28. WHAT IS A SHARE? 29. WHAT IS PORTFOLIO MANAGEMENT? 30. What is Accounting? 31. Re: what is the entry for rent paid to company, provision for taxes in your books? BY RENT PAID A/C DR. TO TDS ON RENT A/C CR TO CASH/BANK A/C CR 1. What is dishonor check? 2. New emlpoyee was joined on 15th Jan and salary paid on 28th Feb amt of Rs.20000/- and asked to give the Journal entry for the Month of Jan, Fed and March (His Monthly Salary is Rs.8000/-) ? 3. I KNOW THAT INSURANCE CHARGES ON PURCHASE OF VEHILE (LIGHT/HEAVY VEHICLES)HAS BEEN CAPITALISED OR NOT.? 4. Expand---------SDRT? 5. What is difference between profit, revenue? 6. why balance sheet should tally? 7. What is BRS? What is the use of BRS? 8. Please let me know the journal entry for the below. "A" paid Rs.100 to "C" on behalf of "B"? 9. what is purchase consideration? 10. expand P P Division ? 11. Stale Cheque entry in the books & when it reissued again then Entry in the books.? 12. what is cost accounting ? 13. what is mean by credit purchase? 14. WHAT IS THE MEANING OF BLUE CHIP COMPANY? 15. what is buy back of share & why a company go for it? 16. What is the types of accounts & it's rules ? 17. what is reconciliation ? 18. EXPAND______________RTA? 19. what is depreciation? 20. EXPAND______________IDBI? 21. what is difference between nominal and real account ? 22. what is the concept of finance accounting?
