Ind AS 12 – Income Taxes

The objective of this Standard is to prescribe the accounting treatment for income taxes. The principal issue in accounting for income taxes is how to account for the current and future tax consequences of:
(a) the future recovery (settlement) of the carrying amount of assets (liabilities) that are recognised in an entity’s balance sheet; and
(b) transactions and other events of the current period that are recognised in an entity’s financial statements.

In India, everyone who earns or gets an income is subject to tax , whether he’s a resident or a non-resident of India. The income earned might be salary, pension or might be an interest from a bank account . Even, winning receipt from contests like “Kaun Banega Crorepati” are subject to tax on the prize . during this connection, the Ind AS 12 serves the aim to know income taxes including both domestic and foreign taxes, which are supported taxable profits. the quality also includes withholding taxes.

The basic objective of the quality is to elucidate the accounting treatment for income taxes. The principal challenge in accounting for income taxes is the way to differentiate and account for current and future tax consequences of:

• Future settlement of carrying values of assets and liabilities that are recognized within the record of a corporation . If it’s estimated that the settlement of the carrying value will end in a difference of tax amount which should then be recognized as deferred tax.
• Events and transactions that are recognized within the current period. However, the accounting treatment for the tax associated with the events are going to be an equivalent because the events.

Important terms

• Tax expense or Tax income: it’s the mixture amount which is included within the calculation of profit or loss in respect of current tax and deferred tax;
• Current tax: it’s the quantity of income taxes payable or recoverable associated with the present profit or loss for a period;
• Deferred Tax liability: it’s the quantity of tax payable in future periods in reference to the taxable temporary differences;
• Deferred tax asset: it’s the quantity of tax recoverable in future periods in reference to the deductible temporary differences, carry over of unutilized tax losses, and carry over of unused tax credits;
• Temporary differences: These are the differences between the carrying value of an asset or liability within the record and its tax base; and
• Tax Base of an asset or liability is that the amount associated with the asset or liability for tax purposes.

Recognition
Current taxes for both current and prior periods shall, to the extent not paid, be recognized as a liability. If the prepaid amount in respect of current and prior periods exceeds the quantity actually due for those periods, then the surplus amount shall be recognized as an asset.

It is integral within the recognition of an asset or liability that the reporting entity expects to recover or settle the carrying value of such an asset or liability. If it’s probable that recovery or settlement of that carrying value will make future tax payments higher or smaller than they might be if such recovery or settlement were subject to possess no tax consequences, the entity is required to acknowledge a deferred liabilities or asset, with certain limited exceptions.

A deferred tax asset shall be recognized for the carry over of unutilized tax losses and unutilized tax credits to the extent that it’s expected that the longer term taxable profit are going to be available against which the unutilized tax losses and unutilized tax credits are often used. Taxes to the extent unpaid for current and prior periods are going to be recognized as a deferred liabilities . If the quantity already purchased current and prior periods exceeds the particular amount due, then it’ll be recognized as an asset.

A deferred tax asset are going to be recognized for all the deductible temporary differences, provided it’s expected that the taxable profit are going to be available for utilization of deductible temporary differences. However, Ind AS 12 forbids recognizing a deferred tax asset if that asset arises from the initial recognition of an asset or liability during a transaction that:

• is not a business combination; and
• when the transaction enters, it affects neither accounting profit nor taxable profit nor tax loss.

Deferred liabilities shall be recognized for all taxable temporary differences. However, Ind AS 12 forbids the recognizing deferred tax on taxable temporary differences that arise from:

• Initial recognition of goodwill; and
• Initial recognition of asset or liability that’s not a business combination and neither affects accounting profit or taxable profit at the time of transaction.

A tax loss, which will be utilized to recover current tax of a previous period, is recognized as an asset within the period during which the tax loss has occurred.

Measurement of current and deferred tax assets/liabilities
Current tax assets or liabilities shall be measured at the quantity expected to be recovered from or paid to the taxation authorities, using the tax rates and tax laws that are enacted or subsequently enacted before the top of the reporting period.

Deferred tax assets or liability are going to be measured at the expected tax rates within the period during which the asset is realized or liability paid supported the tax laws that are enacted or subsequently enacted at the top of the reporting period.

Review of deferred tax assets and liabilities
The carrying value of a deferred tax asset shall be reviewed regularly at the top of every reporting period. An entity shall decrease the carrying value of a deferred tax asset to the extent that it’s not expected that adequate taxable profit would be available to permit the advantage of part or all of that deferred tax asset to be utilized. Any such fall should be reversed to the extent that it’s expected that adequate taxable profit are going to be available.

Presentation of current and deferred tax assets and liabilities
An entity shall offset current tax assets and liabilities as long as it’s legally entitled to and it intends to choose a net basis or to understand assets and settle liabilities simultaneously.

Disclosure of current and deferred tax assets and liabilities
All the main components of tax expense or income shall be disclosed individually.