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Income Taxes

Ind AS - 012 - B. Indian Accounting Standards (Ind AS) - Companies Law - Ind AS - 012 - Indian Accounting Standard (Ind AS) 12 (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.) Objective The objective of this Standard is to prescribe the accounting treatment for . The principal issue in accounting for is how to account for the current and future tax consequences of: (a) the futu .....

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larger (smaller) than they would be if such recovery or settlement were to have no tax consequences, this Standard requires an entity to recognise a deferred tax liability (deferred tax asset), with certain limited exceptions. This Standard requires an entity to account for the tax consequences of transactions and other events in the same way that it accounts for the transactions and other events themselves. Thus, for transactions and other events recognised in profit or loss, any related tax e .....

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bargain purchase gain recognised. This Standard also deals with the recognition of deferred tax assets arising from unused tax losses or unused tax credits, the presentation of in the financial statements and the disclosure of information relating to . Scope 1 This Standard shall be applied in accounting for . 2 For the purposes of this Standard, include all domestic and foreign taxes which are based on taxable profits. also include taxes, such as withholding taxes, which are payable by a subsid .....

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th the meanings specified: Accounting profit is profit or loss for a period before deducting tax expense. Taxable profit (tax loss) is the profit (loss) for a period, determined in accordance with the rules established by the taxation authorities, upon which are payable (recoverable). Tax expense (tax income) is the aggregate amount included in the determination of profit or loss for the period in respect of current tax and deferred tax. Current tax is the amount of payable (recoverable) in resp .....

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tax base. Temporary differences may be either: (a) taxable temporary differences, which are temporary differences that will result in taxable amounts in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled; or (b) deductible temporary differences, which are temporary differences that will result in amounts that are deductible in determining taxable profit (tax loss) of future periods when the carrying amount of the as .....

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c benefits will not be taxable, the tax base of the asset is equal to its carrying amount. Examples 1 A machine cost ₹ 100. For tax purposes, depreciation of ₹ 30 has already been deducted in the current and prior periods and the remaining cost will be deductible in future periods, either as depreciation or through a deduction on disposal. Revenue generated by using the machine is taxable, any gain on disposal of the machine will be taxable and any loss on disposal will be deductible .....

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he dividends are not taxable. In substance, the entire carrying amount of the asset is deductible against the economic benefits. Consequently, the tax base of the dividends receivable is ₹ 100.(a) 5 A loan receivable has a carrying amount of ₹ 100. The repayment of the loan will have no tax consequences. The tax base of the loan is ₹ 100. (a) Under this analysis, there is no taxable temporary difference. An alternative analysis is that the accrued dividends receivable have a ta .....

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le in future periods. Examples 1 Current liabilities include accrued expenses with a carrying amount of ₹ 100. The related expense will be deducted for tax purposes on a cash basis. The tax base of the accrued expenses is nil. 2 Current liabilities include interest revenue received in advance, with a carrying amount of ₹ 100. The related interest revenue was taxed on a cash basis. The tax base of the interest received in advance is nil. 3 Current liabilities include accrued expenses .....

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e of the loan is ₹ 100. (a) Under this analysis, there is no deductible temporary difference. An alternative analysis is that the accrued fines and penalties payable have a tax base of nil and that a tax rate of nil is applied to the resulting deductible temporary difference of ₹ 100. Under both analyses, there is no deferred tax asset. 9 Some items have a tax base but are not recognised as assets and liabilities in the balance sheet. For example, preliminary expenses are recognised .....

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immediately apparent, it is helpful to consider the fundamental principle upon which this Standard is based: that an entity shall, with certain limited exceptions, recognise a deferred tax liability (asset) whenever recovery or settlement of the carrying amount of an asset or liability would make future tax payments larger (smaller) than they would be if such recovery or settlement were to have no tax consequences. Example C following paragraph 51A illustrates circumstances when it may be helpfu .....

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ned by reference to a consolidated tax return in those jurisdictions in which such a return is filed. Recognition of current tax liabilities and current tax assets 12 Current tax for current and prior periods shall, to the extent unpaid, be recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess shall be recognised as an asset. 13 The benefit relating to a tax loss that can be carried back to recover curre .....

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rences, except to the extent that the deferred tax liability arises from: (a) the initial recognition of goodwill; or (b) the initial recognition of an asset or liability in a transaction which: (i) is not a business combination; and (ii) at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). However, for taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint arrangements, a deferred tax .....

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n future periods is a deferred tax liability. As the entity recovers the carrying amount of the asset, the taxable temporary difference will reverse and the entity will have taxable profit. This makes it probable that economic benefits will flow from the entity in the form of tax payments. Therefore, this Standard requires the recognition of all deferred tax liabilities, except in certain circumstances described in paragraphs 15 and 39. Example An asset which cost ₹ 150 has a carrying amou .....

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e between the carrying amount of ₹ 100 and the tax base of ₹ 60 is a taxable temporary difference of ₹ 40. Therefore, the entity recognises a deferred tax liability of ₹ 10 (Rs. 40 at 25%) representing the that it will pay when it recovers the carrying amount of the asset. 17 Some temporary differences arise when income or expense is included in accounting profit in one period but is included in taxable profit in a different period. Such temporary differences are often de .....

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e profit until cash is collected; (b) depreciation used in determining taxable profit (tax loss) may differ from that used in determining accounting profit. The temporary difference is the difference between the carrying amount of the asset and its tax base which is the original cost of the asset less all deductions in respect of that asset permitted under taxation laws in determining taxable profit of the current and prior periods. A taxable temporary difference arises, and results in a deferre .....

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e temporary difference is the difference between the carrying amount of the development costs and their tax base of nil. 18 Temporary differences also arise when: (a) the identifiable assets acquired and liabilities assumed in a business combination are recognised at their fair values in accordance with Ind AS 103, Business Combinations, but no equivalent adjustment is made for tax purposes (see paragraph 19); (b) assets are revalued and no equivalent adjustment is made for tax purposes (see par .....

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38-45). Business combinations 19 With limited exceptions, the identifiable assets acquired and liabilities assumed in a business combination are recognised at their fair values at the acquisition date. Temporary differences arise when the tax bases of the identifiable assets acquired and liabilities assumed are not affected by the business combination or are affected differently. For example, when the carrying amount of an asset is increased to fair value but the tax base of the asset remains a .....

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asset to fair value affects taxable profit (tax loss) for the current period. As a result, the tax base of the asset is adjusted and no temporary difference arises. In other jurisdictions, the revaluation or restatement of an asset does not affect taxable profit in the period of the revaluation or restatement and, consequently, the tax base of the asset is not adjusted. Nevertheless, the future recovery of the carrying amount will result in a taxable flow of economic benefits to the entity and t .....

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that will be allowable for tax purposes in future periods; or (b) tax on capital gains is deferred if the proceeds of the disposal of the asset are invested in similar assets. In such cases, the tax will ultimately become payable on sale or use of the similar assets. Goodwill 21 Goodwill arising in a business combination is measured as the excess of (a) over (b) below: (a) the aggregate of: (i) the consideration transferred measured in accordance with Ind AS 103, which generally requires acquisi .....

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will as a deductible expense in determining taxable profit. Moreover, in such jurisdictions, the cost of goodwill is often not deductible when a subsidiary disposes of its underlying business. In such jurisdictions, goodwill has a tax base of nil. Any difference between the carrying amount of goodwill and its tax base of nil is a taxable temporary difference. However, this Standard does not permit the recognition of the resulting deferred tax liability because goodwill is measured as a residual .....

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he entity from recognising the resulting deferred tax liability. If the entity subsequently recognises an impairment loss of ₹ 20 for that goodwill, the amount of the taxable temporary difference relating to the goodwill is reduced from ₹ 100 to ₹ 80, with a resulting decrease in the value of the unrecognised deferred tax liability. That decrease in the value of the unrecognised deferred tax liability is also regarded as relating to the initial recognition of the goodwill and i .....

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recognition and ₹ 80 at the end of the year of acquisition. If the carrying amount of goodwill at the end of the year of acquisition remains unchanged at ₹ 100, a taxable temporary difference of ₹ 20 arises at the end of that year. Because that taxable temporary difference does not relate to the initial recognition of the goodwill, the resulting deferred tax liability is recognised. Initial recognition of an asset or liability 22 A temporary difference may arise on initial reco .....

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ects either accounting profit or taxable profit, an entity recognises any deferred tax liability or asset and recognises the resulting deferred tax expense or income in profit or loss (see paragraph 59); (c) if the transaction is not a business combination, and affects neither accounting profit nor taxable profit, an entity would, in the absence of the exemption provided by paragraphs 15 and 24, recognise the resulting deferred tax liability or asset and adjust the carrying amount of the asset o .....

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cost ₹ 1,000 throughout its useful life of five years and then dispose of it for a residual value of nil. The tax rate is 40%. Depreciation of the asset is not deductible for tax purposes. On disposal, any capital gain would not be taxable and any capital loss would not be deductible. As it recovers the carrying amount of the asset, the entity will earn taxable income of ₹ 1,000 and pay tax of ₹ 400. The entity does not recognise the resulting deferred tax liability of ₹ .....

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nd) classifies the instrument s liability component as a liability and the equity component as equity. In some jurisdictions, the tax base of the liability component on initial recognition is equal to the initial carrying amount of the sum of the liability and equity components. The resulting taxable temporary difference arises from the initial recognition of the equity component separately from the liability component. Therefore, the exception set out in paragraph 15(b) does not apply. Conseque .....

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ofit will be available against which the deductible temporary difference can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that: (a) is not a business combination; and (b) at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). However, for deductible temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint arrangements, a d .....

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e carrying amount of the liability and its tax base. Accordingly, a deferred tax asset arises in respect of the that will be recoverable in the future periods when that part of the liability is allowed as a deduction in determining taxable profit. Similarly, if the carrying amount of an asset is less than its tax base, the difference gives rise to a deferred tax asset in respect of the that will be recoverable in future periods. Example An entity recognises a liability of ₹ 100 for gratuit .....

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e taxable profit by an amount of ₹ 100 and, consequently, reduce its future tax payments by ₹ 25 (Rs. 100 at 25%). The difference between the carrying amount of ₹ 100 and the tax base of nil is a deductible temporary difference of ₹ 100. Therefore, the entity recognises a deferred tax asset of ₹ 25 (Rs. 100 at 25%), provided that it is probable that the entity will earn sufficient taxable profit in future periods to benefit from a reduction in tax payments. 26 The f .....

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nil. Such a deductible temporary difference results in a deferred tax asset as economic benefits will flow to the entity in the form of a deduction from taxable profits when contributions or retirement benefits are paid; (b) preliminary expenses are recognised as an expense in determining accounting profit in the period in which they are incurred but may not be permitted as a deduction in determining taxable profit (tax loss) until a later period(s). The difference between the tax base of the pr .....

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ng taxable profits until a later period, a deductible temporary difference arises which results in a deferred tax asset. A deferred tax asset also arises when the fair value of an identifiable asset acquired is less than its tax base. In both cases, the resulting deferred tax asset affects goodwill (see paragraph 66); and (d) certain assets may be carried at fair value, or may be revalued, without an equivalent adjustment being made for tax purposes (see paragraph 20). A deductible temporary dif .....

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t which the deductible temporary differences can be utilised. 28 It is probable that taxable profit will be available against which a deductible temporary difference can be utilised when there are sufficient taxable temporary differences relating to the same taxation authority and the same taxable entity which are expected to reverse: (a) in the same period as the expected reversal of the deductible temporary difference; or (b) in periods into which a tax loss arising from the deferred tax asset .....

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riod as the reversal of the deductible temporary difference (or in the periods into which a tax loss arising from the deferred tax asset can be carried back or forward). In evaluating whether it will have sufficient taxable profit in future periods, an entity ignores taxable amounts arising from deductible temporary differences that are expected to originate in future periods, because the deferred tax asset arising from these deductible temporary differences will itself require future taxable pr .....

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ivable basis; (b) deferring the claim for certain deductions from taxable profit; (c) selling, and perhaps leasing back, assets that have appreciated but for which the tax base has not been adjusted to reflect such appreciation; and (d) selling an asset that generates non-taxable income (such as, in some jurisdictions, a government bond) in order to purchase another investment that generates taxable income. Where tax planning opportunities advance taxable profit from a later period to an earlier .....

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et arising from the initial recognition of goodwill shall be recognised as part of the accounting for a business combination to the extent that it is probable that taxable profit will be available against which the deductible temporary difference could be utilised. Initial recognition of an asset or liability 33 One case when a deferred tax asset arises on initial recognition of an asset is when a non-taxable government grant related to an asset is set up as deferred income in which case the dif .....

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s can be utilised. 35 The criteria for recognising deferred tax assets arising from the carryforward of unused tax losses and tax credits are the same as the criteria for recognising deferred tax assets arising from deductible temporary differences. However, the existence of unused tax losses is strong evidence that future taxable profit may not be available. Therefore, when an entity has a history of recent losses, the entity recognises a deferred tax asset arising from unused tax losses or tax .....

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taxable profit will be available against which the unused tax losses or unused tax credits can be utilised: (a) whether the entity has sufficient taxable temporary differences relating to the same taxation authority and the same taxable entity, which will result in taxable amounts against which the unused tax losses or unused tax credits can be utilised before they expire; (b) whether it is probable that the entity will have taxable profits before the unused tax losses or unused tax credits expi .....

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assessment of unrecognised deferred tax assets 37 At the end of each reporting period, an entity reassesses unrecognised deferred tax assets. The entity recognises a previously unrecognised deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. For example, an improvement in trading conditions may make it more probable that the entity will be able to generate sufficient taxable profit in the future for the deferr .....

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f the net assets of the subsidiary, branch, associate or investee, including the carrying amount of goodwill) becomes different from the tax base (which is often cost) of the investment or interest. Such differences may arise in a number of different circumstances, for example: (a) the existence of undistributed profits of subsidiaries, branches, associates and joint arrangements; (b) changes in foreign exchange rates when a parent and its subsidiary are based in different countries; and (c) a r .....

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s in subsidiaries, branches and associates, and interests in joint arrangements, except to the extent that both of the following conditions are satisfied: (a) the parent, investor, joint venturer or joint operator is able to control the timing of the reversal of the temporary difference; and (b) it is probable that the temporary difference will not reverse in the foreseeable future. 40 As a parent controls the dividend policy of its subsidiary, it is able to control the timing of the reversal of .....

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e same considerations apply to investments in branches. 41 The non-monetary assets and liabilities of an entity are measured in its functional currency (see Ind AS 21, The Effects of Changes in Foreign Exchange Rates). If the entity s taxable profit or tax loss (and, hence, the tax base of its non-monetary assets and liabilities) is determined in a different currency, changes in the exchange rate give rise to temporary differences that result in a recognised deferred tax liability or (subject to .....

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he associate. In some cases, an investor may not be able to determine the amount of tax that would be payable if it recovers the cost of its investment in an associate, but can determine that it will equal or exceed a minimum amount. In such cases, the deferred tax liability is measured at this amount. 43 The arrangement between the parties to a joint arrangement usually deals with the distribution of the profits and identifies whether decisions on such matters require the consent of all the par .....

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gements, to the extent that, and only to the extent that, it is probable that: (a) the temporary difference will reverse in the foreseeable future; and (b) taxable profit will be available against which the temporary difference can be utilised. 45 In deciding whether a deferred tax asset is recognised for deductible temporary differences associated with its investments in subsidiaries, branches and associates, and its interests in joint arrangements, an entity considers the guidance set out in p .....

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ax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. 48 Current and deferred tax assets and liabilities are usually measured using the tax rates (and tax laws) that have been enacted. However, in some jurisdictions, announcements of tax rates (and tax laws) by the government have the substantive effect of actual enactment, which may follow the announcement by a period of several months. In these circumstances, tax assets and liabilities are .....

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which the entity expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. 51A In some jurisdictions, the manner in which an entity recovers (settles) the carrying amount of an asset (liability) may affect either or both of: (a) the tax rate applicable when the entity recovers (settles) the carrying amount of the asset (liability); and (b) the tax base of the asset (liability). In such cases, an entity measures deferred tax liabilities a .....

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ability of ₹ 12 (Rs. 40 at 30%) if it expects to retain the item and recover its carrying amount through use. Example B An item of property, plant and equipment with a cost of ₹ 100 and a carrying amount of ₹ 80 is revalued to ₹ 150. No equivalent adjustment is made for tax purposes. Cumulative depreciation for tax purposes is ₹ 30 and the tax rate is 30%. If the item is sold for more than cost, the cumulative tax depreciation of ₹ 30 will be included in taxab .....

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mediately for proceeds of ₹ 150, the deferred tax liability is computed as follows: Taxable Temporary Difference (Amount in Rs..) Tax Rate Deferred Tax Liability (Amount in Rs..) Proceeds in excess of cost 30 30% 9 Proceeds in excess of cost 50 nil - Total 80 9 (note: in accordance with paragraph 61A, the additional deferred tax that arises on the revaluation is recognised in other comprehensive income) Example C The facts are as in example B, except that if the item is sold for more than .....

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ty of Rs.. 24 (Rs. 80 at 30%), as in example B. If the entity expects to recover the carrying amount by selling the item immediately for proceeds of ₹ 150, the entity will be able to deduct the indexed cost of ₹ 110. The net proceeds of Rs.. 40 will be taxed at 40%. In addition, the cumulative tax depreciation of ₹ 30 will be included in taxable income and taxed at 30%. On this basis, the tax base is ₹ 80 (Rs. 110 less Rs..30), there is a taxable temporary difference of & .....

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valuation model in Ind AS 16, the measurement of the deferred tax liability or deferred tax asset shall reflect the tax consequences of recovering the carrying amount of the non-depreciable asset through sale, regardless of the basis of measuring the carrying amount of that asset. Accordingly, if the tax law specifies a tax rate applicable to the taxable amount derived from the sale of an asset that differs from the tax rate applicable to the taxable amount derived from using an asset, the forme .....

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all of the net profit or retained earnings is paid out as a dividend to shareholders of the entity. In some other jurisdictions, may be refundable or payable if part or all of the net profit or retained earnings is paid out as a dividend to shareholders of the entity. In these circumstances, current and deferred tax assets and liabilities are measured at the tax rate applicable to undistributed profits. 52B In the circumstances described in paragraph 52A, the income tax consequences of dividend .....

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52B The following example deals with the measurement of current and deferred tax assets and liabilities for an entity in a jurisdiction where are payable at a higher rate on undistributed profits (50%) with an amount being refundable when profits are distributed. The tax rate on distributed profits is 35%. At the end of the reporting period, 31 December 20X1, the entity does not recognise a liability for dividends proposed or declared after the reporting period. As a result, no dividends are re .....

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recovers or settles the carrying amounts of its assets and liabilities based on the tax rate applicable to undistributed profits. Subsequently, on 15 March 20X2 the entity recognises dividends of Rs..10,000 from previous operating profits as a liability. On 15 March 20X2, the entity recognises the recovery of of ₹ 1,500 (15% of the dividends recognised as a liability) as a current tax asset and as a reduction of current income tax expense for 20X2. 53 Deferred tax assets and liabilities s .....

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ities. Therefore, this Standard does not require or permit the discounting of deferred tax assets and liabilities. 55 Temporary differences are determined by reference to the carrying amount of an asset or liability. This applies even where that carrying amount is itself determined on a discounted basis, for example in the case of retirement benefit obligations (see Ind AS 19, Employee Benefits). 56 The carrying amount of a deferred tax asset shall be reviewed at the end of each reporting period .....

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sistent with the accounting for the transaction or event itself. Paragraphs 58 to 68C implement this principle. Items recognised in profit or loss 58 Current and deferred tax shall be recognised as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from: (a) a transaction or event which is recognised, in the same or a different period, outside profit or loss, either in other comprehensive income or directly in equity (see paragraphs 61A - .....

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sed in profit or loss. Examples are when: 1[ (a) Royalty or dividend revenue is received in arrears and is included in accounting profit on a time apportionment basis in accordance with Ind AS 18, Revenue, or Ind AS 109, Financial Instruments, as relevant, but is included in taxable profit (tax loss) on a cash basis; and ] (b) costs of intangible assets have been capitalised in accordance with Ind AS 38 and are being amortised in profit or loss, but were deducted for tax purposes when they were .....

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tside profit or loss (see paragraph 63). Items recognised outside profit or loss 61 [Refer Appendix 1] 61A Current tax and deferred tax shall be recognised outside profit or loss if the tax relates to items that are recognised, in the same or a different period, outside profit or loss. Therefore, current tax and deferred tax that relates to items that are recognised, in the same or a different period: (a) in other comprehensive income, shall be recognised in other comprehensive income (see parag .....

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efer Appendix 1] 62A Indian Accounting Standards require or permit particular items to be credited or charged directly to equity. Examples of such items are: (a) an adjustment to the opening balance of retained earnings resulting from either a change in accounting policy that is applied retrospectively or the correction of an error (see Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors); and (b) amounts arising on initial recognition of the equity component of a compound .....

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her tax rules affects a deferred tax asset or liability relating (in whole or in part) to an item that was previously recognised outside profit or loss; or (c) an entity determines that a deferred tax asset should be recognised, or should no longer be recognised in full, and the deferred tax asset relates (in whole or in part) to an item that was previously recognised outside profit or loss. In such cases, the current and deferred tax related to items that are recognised outside profit or loss a .....

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ntity makes such a transfer, the amount transferred is net of any related deferred tax. Similar considerations apply to transfers made on disposal of an item of property, plant or equipment. 65 When an asset is revalued for tax purposes and that revaluation is related to an accounting revaluation of an earlier period, or to one that is expected to be carried out in a future period, the tax effects of both the asset revaluation and the adjustment of the tax base are recognised in other comprehens .....

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is referred to as a withholding tax. Such an amount paid or payable to taxation authorities is charged to equity as a part of the dividends. Deferred tax arising from a business combination 66 As explained in paragraphs 19 and 26(c), temporary differences may arise in a business combination. In accordance with Ind AS 103, an entity recognises any resulting deferred tax assets (to the extent that they meet the recognition criteria in paragraph 24) or deferred tax liabilities as identifiable asse .....

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nsider it probable that it will recover its own deferred tax asset that was not recognised before the business combination. For example, the acquirer may be able to utilise the benefit of its unused tax losses against the future taxable profit of the acquiree. Alternatively, as a result of the business combination it might no longer be probable that future taxable profit will allow the deferred tax asset to be recovered. In such cases, the acquirer recognises a change in the deferred tax asset i .....

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ised subsequently. An entity shall recognise acquired deferred tax benefits that it realises after the business combination as follows: (a) Acquired deferred tax benefits recognised within the measurement period that result from new information about facts and circumstances that existed at the acquisition date shall be applied to reduce the carrying amount of any goodwill related to that acquisition. If the carrying amount of that goodwill is zero, any remaining deferred tax benefits shall be re .....

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ayment transactions 68A In some tax jurisdictions, an entity receives a tax deduction (ie an amount that is deductible in determining taxable profit) that relates to remuneration paid in shares, share options or other equity instruments of the entity. The amount of that tax deduction may differ from the related cumulative remuneration expense, and may arise in a later accounting period. For example, in some jurisdictions, an entity may recognise an expense for the consumption of employee service .....

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periods under taxation laws), and the carrying amount of nil, is a deductible temporary difference that results in a deferred tax asset. If the amount permitted as a deduction in future periods under taxation laws is not known at the end of the period, it shall be estimated, based on information available at the end of the period. For example, if the amount permitted as a deduction in future periods under taxation laws is dependent upon the entity s share price at a future date, the measurement .....

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he tax arises from (a) a transaction or event that is recognised, in the same or a different period, outside profit or loss, or (b) a business combination (other than the acquisition by an investment entity of a subsidiary that is required to be measured at fair value through profit or loss). If the amount of the tax deduction (or estimated future tax deduction) exceeds the amount of the related cumulative remuneration expense, this indicates that the tax deduction relates not only to remunerati .....

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imultaneously. 72 Although current tax assets and liabilities are separately recognised and measured they are offset in the balance sheet subject to criteria similar to those established for financial instruments in Ind AS 32. An entity will normally have a legally enforceable right to set off a current tax asset against a current tax liability when they relate to levied by the same taxation authority and the taxation laws permit the entity to make or receive a single net payment. 73 In consolid .....

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gally enforceable right to set off current tax assets against current tax liabilities; and (b) the deferred tax assets and the deferred tax liabilities relate to levied by the same taxation authority on either: (i) the same taxable entity; or (ii) different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabiliti .....

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may have a legally enforceable right of set-off, and an intention to settle net, for some periods but not for others. In such rare circumstances, detailed scheduling may be required to establish reliably whether the deferred tax liability of one taxable entity will result in increased tax payments in the same period in which a deferred tax asset of another taxable entity will result in decreased payments by that second taxable entity. Tax expense Tax expense (income) related to profit or loss fr .....

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ces on deferred foreign tax liabilities or assets are recognised in the statement of profit and loss, such differences may be classified as deferred tax expense (income) if that presentation is considered to be the most useful to financial statement users. Disclosure 79 The major components of tax expense (income) shall be disclosed separately. 80 Components of tax expense (income) may include: (a) current tax expense (income); (b) any adjustments recognised in the period for current tax of prio .....

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temporary difference of a prior period that is used to reduce deferred tax expense; (g) deferred tax expense arising from the write-down, or reversal of a previous write-down, of a deferred tax asset in accordance with paragraph 56; and (h) the amount of tax expense (income) relating to those changes in accounting policies and errors that are included in profit or loss in accordance with Ind AS 8, because they cannot be accounted for retrospectively. 81 The following shall also be disclosed sepa .....

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ing profit multiplied by the applicable tax rate(s), disclosing also the basis on which the applicable tax rate(s) is (are) computed; or (ii) a numerical reconciliation between the average effective tax rate and the applicable tax rate, disclosing also the basis on which the applicable tax rate is computed; (d) an explanation of changes in the applicable tax rate(s) compared to the previous accounting period; (e) the amount (and expiry date, if any) of deductible temporary differences, unused ta .....

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sets and liabilities recognised in the balance sheet for each period presented; (ii) the amount of the deferred tax income or expense recognised in profit or loss, if this is not apparent from the changes in the amounts recognised in the balance sheet; (h) in respect of discontinued operations, the tax expense relating to: (i) the gain or loss on discontinuance; and (ii) the profit or loss from the ordinary activities of the discontinued operation for the period, together with the corresponding .....

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d tax benefits acquired in a business combination are not recognised at the acquisition date but are recognised after the acquisition date (see paragraph 68), a description of the event or change in circumstances that caused the deferred tax benefits to be recognised. 82 An entity shall disclose the amount of a deferred tax asset and the nature of the evidence supporting its recognition, when: (a) the utilisation of the deferred tax asset is dependent on future taxable profits in excess of the p .....

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consequences practicably determinable and whether there are any potential income tax consequences not practicably determinable. 83 [Refer Appendix 1] 84 The disclosures required by paragraph 81(c) enable users of financial statements to understand whether the relationship between tax expense (income) and accounting profit is unusual and to understand the significant factors that could affect that relationship in the future. The relationship between tax expense (income) and accounting profit may .....

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h the entity is domiciled, aggregating the tax rate applied for national taxes with the rates applied for any local taxes which are computed on a substantially similar level of taxable profit (tax loss). However, for an entity operating in several jurisdictions, it may be more meaningful to aggregate separate reconciliations prepared using the domestic rate in each individual jurisdiction. The following example illustrates how the selection of the applicable tax rate affects the presentation of .....

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it 2,500 3,000 Tax at the domestic rate of 30% 750 900 Tax effect of expenses that are not deductible for tax purposes 60 30 Effect of lower tax rates in country B (50) (150) Tax expense 760 780 86 The average effective tax rate is the tax expense (income) divided by the accounting profit. 87 It would often be impracticable to compute the amount of unrecognised deferred tax liabilities arising from investments in subsidiaries, branches and associates and interests in joint arrangements (see para .....

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esult from the payment of dividends to its shareholders. An entity discloses the important features of the income tax systems and the factors that will affect the amount of the potential income tax consequences of dividends. 87B It would sometimes not be practicable to compute the total amount of the potential income tax consequences that would result from the payment of dividends to shareholders. This may be the case, for example, where an entity has a large number of foreign subsidiaries. Howe .....

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tax consequences not practicably determinable. In the parent s separate financial statements, if any, the disclosure of the potential income tax consequences relates to the parent s retained earnings. 87C An entity required to provide the disclosures in paragraph 82A may also be required to provide disclosures related to temporary differences associated with investments in subsidiaries, branches and associates or interests in joint arrangements. In such cases, an entity considers this in determi .....

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ese subsidiaries. 88 An entity discloses any tax-related contingent liabilities and contingent assets in accordance with Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets. Contingent liabilities and contingent assets may arise, for example, from unresolved disputes with the taxation authorities. Similarly, where changes in tax rates or tax laws are enacted or announced after the reporting period, an entity discloses any significant effect of those changes on its current and def .....

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quity. It may also occur upon a controlling shareholder s move to a foreign country. As a result of such an event, an entity may be taxed differently; it may for example gain or lose tax incentives or become subject to a different rate of tax in the future. 2 A change in the tax status of an entity or its shareholders may have an immediate effect on the entity s current tax liabilities or assets. The change may also increase or decrease the deferred tax liabilities and assets recognised by the e .....

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nt and deferred tax consequences of a change in tax status shall be included in profit or loss for the period, unless those consequences relate to transactions and events that result, in the same or a different period, in a direct credit or charge to the recognised amount of equity or in amounts recognised in other comprehensive income. Those tax consequences that relate to changes in the recognised amount of equity, in the same or a different period (not included in profit or loss), shall be ch .....

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kes reference to Ind AS 12. 2 Appendix C, Levies, contained in Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets. Appendix 1 Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 12 and the corresponding International Accounting Standard (IAS) 12, , and SIC 25, -Changes in the Tax Status of an Entity or its Shareholders, issued by the Inter .....

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t is used instead of Statement of financial position and Statement of profit and loss is used instead of Statement of comprehensive income . Words approved for issue have been used instead of authorised for issue in the context of financial statements considered for the purpose of events after the reporting period. 3 Requirements regarding presentation of tax expense (income) in the separate income statement, where separate income statement is presented, have been deleted. This change is consequ .....

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