Ind AS 12 Income Taxes Explained: Assets, Liabilities & Scope

Introduction to Ind AS 12 Income Taxes

 Ind AS 12 Income Taxes prescribes the accounting treatment for income taxes, including current tax and deferred tax. To prescribe the recognition and measurement of income tax expenses and liabilities in financial statements, ensuring that the effects of taxes are appropriately reflected.

Scope of Ind AS 12 Income Taxes

Applicability:

• Ind AS 12 applies to all entities preparing financial statements under Ind AS.
• It covers all income taxes, including those based on profits, capital gains, and other taxable income.

Exclusions:

• Ind AS 12 does not apply to taxes based on sales, value-added tax, or other taxes not based on income.

Key Definitions in Ind AS 12 Income Taxes

Current Tax:

• The amount of income tax payable (or recoverable) in respect of the taxable profit (or loss) for the current period.

Deferred Tax:

• The amount of income tax payable or recoverable in future periods in respect of taxable temporary differences and deductible temporary differences.

Tax Base:

• The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes.

Recognition of Ind AS 12 Income Tax

Current Tax:

• Recognized as an expense or income in the profit and loss statement, based on taxable profits.

Deferred Tax:

• Recognized for temporary differences between the carrying amount of assets and liabilities in the financial statements and their tax bases.

Measurement of Current and Deferred Tax

Current Tax Measurement:

• Based on tax rates and laws enacted or substantively enacted at the end of the reporting period.

Deferred Tax Measurement:

• Measured using the tax rates that are expected to apply when the asset is realized or the liability is settled.

Temporary Differences in Tax Accounting under Ind AS

Taxable Temporary Differences:

• Temporary differences that will result in taxable amounts in determining taxable profits (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled
• These arise when the carrying amount of an asset exceeds its tax base, leading to future taxable amounts.

Deductible Temporary Differences:

• Temporary differences that will result in amounts that are deductible in determining taxable profits (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled
• Occur when the tax base of an asset exceeds its carrying amount, leading to future deductible amounts.

Deferred Tax Assets and Liabilities

Recognition Criteria for Deferred Tax Assets

Amounts of income taxes recoverable in the future periods in respect of:

• Deductible temporary difference
• The carry forward of unused tax losses and
• Carry forward of unused tax credits

Recognition Criteria for Deferred Tax Liabilities

• Amounts of income taxes payable in future periods in respect of all taxable temporary differences.

Offsetting Deferred Tax Assets and Liabilities

• Deferred tax assets and liabilities can be offset if they relate to the same taxable entity and the same tax authority.

Presentation and Disclosure Requirements

Presentation:

• Current and deferred tax should be presented separately in the financial statements.

Disclosure:

• The major components of tax expense (current and deferred).
• The effective tax rate reconciled to the statutory tax rate.
• Information about unrecognized deferred tax assets