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As 22

  1. 1. ACCOUNTING STANDARD - 22 TAXES ON INCOME J.P., KAPUR & UBERAI
  2. 2. SCOPE J.P., KAPUR & UBERAI <ul><li>APPLICABLE FROM: </li></ul><ul><ul><ul><li>01.04.2001 - Listed enterprises or in the process of issuing equity or debt securities </li></ul></ul></ul><ul><ul><ul><li>01.04.2002 - Companies not covered as above </li></ul></ul></ul><ul><ul><ul><li>01.04.2003 - All other enterprises. </li></ul></ul></ul>
  3. 3. DEFINITIONS J.P., KAPUR & UBERAI ACCOUNTING INCOME (LOSS) Net profit or loss for a period as per profit and loss statement. TAXABLE INCOME (TAX LOSS) Income (loss) for a period determined in accordance with the tax laws.
  4. 4. TAXES ON INCOME <ul><li>Accounting income and taxable income for a period are seldom the same. </li></ul><ul><li>  Differences between the two are on account of : </li></ul><ul><ul><ul><li>Permanent Differences </li></ul></ul></ul><ul><ul><ul><li>Timing Differences </li></ul></ul></ul>J.P., KAPUR & UBERAI
  5. 5. Permanent Differences J.P., KAPUR & UBERAI Permanent differences are those which arise in one period and do not reverse subsequently For e.g., an income exempt from tax or an expense that is not allowable as a deduction for tax purposes.
  6. 6. Timing Differences <ul><ul><ul><li>Timing differences are those which arise in one period and are capable of reversal in one or more subsequent periods. </li></ul></ul></ul><ul><ul><ul><li>For e.g., Depreciation, Sales Tax , Bonus etc., U/s 43B </li></ul></ul></ul>J.P., KAPUR & UBERAI
  7. 7. TREATMENT <ul><li>ABC Ltd prepares accounts annually on 31st March. It bought a fixed asset for 150,000 in Ist year which is fully depreciable under Income Tax but has a useful life of 3 years as per books. Assuming that the annual profits for 3 years is 200,000. </li></ul><ul><li>Assuming a tax rate of 40%( no surcharge) </li></ul><ul><li>It leads to a tax saving of 60,000 in Ist year as compared to IInd & IIIrd year. The treatment of Deffered Taxation will be as under: </li></ul><ul><li>contd…. </li></ul>J.P., KAPUR & UBERAI
  8. 8. TREATMENT <ul><li>Particulars I II III </li></ul><ul><li>Profit before Depreciation 200 200 200 </li></ul><ul><li>Depreciation as per books 50 50 50 </li></ul><ul><li>Profit before taxes 150 150 150 </li></ul><ul><li>Less: Tax Expense 20 80 80 </li></ul><ul><li>DEFFERED TAX 40 (20) (20) </li></ul><ul><li>TOTAL 60 60 60 </li></ul><ul><li>Profit after Tax 90 90 90 </li></ul><ul><li>DEFFERED TAX LIABILITY 40 20 0 </li></ul>J.P., KAPUR & UBERAI
  9. 9. RECOGNITION <ul><li>For determining the net profit or loss for the period, current tax and deferred tax have to be included. </li></ul><ul><li>Deferred tax assets and liabilities are usually measured using the tax rates and tax laws for the time being in force. </li></ul><ul><li>Deferred tax assets should be recognised and carried forward only to the extent of the deferred taxes those are realisable in future. </li></ul>J.P., KAPUR & UBERAI
  10. 10. MEASUREMENT <ul><li>CURRENT TAX </li></ul><ul><li>At the amount that is expected to be paid to the taxation authorities. </li></ul><ul><li>DEFERRED TAX ASSETS AND LIABILITIES At the tax rates and tax laws that have been enacted at the balance sheet date. </li></ul>J.P., KAPUR & UBERAI
  11. 11. DISCLOSURE <ul><ul><li>Disclose major components of deferred tax assets and liabilities. </li></ul></ul><ul><ul><li>Deferred tax assets and liabilities should be distinguished from assets and liabilities representing current tax for the period </li></ul></ul><ul><ul><li>Disclose nature of evidence supporting recognition of deferred tax assets in the event of there being unabsorbed depreciation or carried forward losses. </li></ul></ul>J.P., KAPUR & UBERAI
  12. 12. Transitional Provisions <ul><li>On first implementation of the standard, the net deferred tax balance accumulated prior to adoption of the standard should be adjusted against revenue reserves. </li></ul>J.P., KAPUR & UBERAI

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