AS 22 - Institute of Chartered Accountants of India

1 as 22 ACCOUNTING FOR TAXES ON INCOME-August 11,2009AS 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeOverviewObjectives, Scope and DefinitionsRecognition and MeasurementConditions for recognition of Deferred TaxAssetsPresentationDisclosureTransitio nal Provisons2of 38 Objectives, Scope and DefinitionsRecognition and MeasurementConditions for recognition of Deferred TaxAssetsPresentationDisclosureTransitio nal ProvisonsAS 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeObjectives, Scope & Definitions3of 38 Objectives, Scope & DefinitionsAS 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeOBJECTIVEP rescribe Accounting Treatment for Taxes onIncomeTaxes on income are to be matched with therevenues and expenses to which they relate4of 38 Prescribe Accounting Treatment for Taxes onIncomeTaxes on income are to be matched with therevenues and expenses to which they relateAS 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeWhy AS-22 ?

2 Cas e StudyComputer Pur. valueTax Rate(Rs. In Crores)Co's ActIT as 31s t - : Depreciation - A/c' : Depreciation - Income - -30% of Rate5of 38 Cas e StudyComputer Pur. valueTax Rate(Rs. In Crores)Co's ActIT as 31s t - : Depreciation - A/c' : Depreciation - Income - -30% of RateAS 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeScopeApplied to accounting for all taxes on income (including domestic and foreign taxes andpossibly taxes such as FBT)Accounting for taxes includesDetermination of the amount of expense or savingDisclosureExcludestaxes on distributions includingDividend Distribution Tax6of 38 Applied to accounting for all taxes on income (including domestic and foreign taxes andpossibly taxes such as FBT)

3 Accounting for taxes includesDetermination of the amount of expense or savingDisclosureExcludestaxes on distributions includingDividend Distribution TaxAS 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeDefinitionsAI: accounting Income is the Net Profit orLoss before tax ( expense or savings)TI: Taxable Income is the taxable income ascomputed under the tax laws on which the taxhas to be : Tax Expense/ Tax Savings= CurrentTax + Deferred Tax7of 38AI: accounting Income is the Net Profit orLoss before tax ( expense or savings)TI: Taxable Income is the taxable income ascomputed under the tax laws on which the taxhas to be : Tax Expense/ Tax Savings= CurrentTax + Deferred TaxAS 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeDefinitionsCT: Current Tax is the amount of tax payable(or recoverable) on the taxable income (orloss) for the : Deferred Tax is the tax effect of thetiming differences8of 38CT: Current Tax is the amount of tax payable(or recoverable) on the taxable income (orloss) for the.

4 Deferred Tax is the tax effect of thetiming differencesAS 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomePBT (Rs. 100 Cr.)Differences(Rs. 30 Cr)Taxable Income(Rs. 70 Cr)Timing(Rs. 20 Cr.)Permanent(Rs. 10 Cr.)Current Tax@ 35%FY2004-05AY 2005-0610of 38 Timing(Rs. 20 Cr.)Permanent(Rs. 10 Cr.)U/s 43 BRs. 8 (Rs. 28 Cr.)DTLF uture Tax Rate@ 30%DTAAS 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeDifferenceinnetblockoffixedassetsb etweentaxandaccounts- (inIyear) (R) srecognisedinP&LA/cPurchaseofScientificR esearchAssets[35(2)]Timing Difference 38 Differenceinnetblockoffixedassetsbetween taxandaccounts- (inIyear) (R) srecognisedinP&LA/cPurchaseofScientificR esearchAssets[35(2)] as 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeTiming Difference ,butdisallowedfortaxpurposesu/s40(a)(i)/ (ia)

5 Andallowedwhenrelevanttaxisdeducted&paid subsequentlyExpenditureU/s43 BofIncomeTaxActProvisionforGratuityu/s40 A(7)ProvisionsmadeintheP&LA/cinanticipat ionofliabilities allowedwhenliabilitiescrystallize12of ,butdisallowedfortaxpurposesu/s40(a)(i)/ (ia)andallowedwhenrelevanttaxisdeducted& paidsubsequentlyExpenditureU/s43 BofIncomeTaxActProvisionforGratuityu/s40 A(7)ProvisionsmadeintheP&LA/cinanticipat ionofliabilities allowedwhenliabilitiescrystallizeAS 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeTiming Difference (U/s35D)ExpensesamortizedinbooksofAccoun tsoveraperiodofyearsbutashorterorlongerp eriodisallowablefortaxpurposesPermanentD iminutionintheValueofInvestments(AS13)13 of 38 Provisionfordoubtfuldebts/advanceProvisi onforwarrantiesPreliminaryexpenseswritte nofffullywhenincurred(U/s35D)Expensesamo rtizedinbooksofAccountsoveraperiodofyear sbutashorterorlongerperiodisallowablefor taxpurposesPermanentDiminutionintheValue ofInvestments(AS13)

6 as 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeAmortization of goodwill considered as disallowable expensePersonal expenditure disallowed by tax authoritiesPenalty(Notbeingcompensatory) PaymentsdisallowedU/s40(A)(3)Donationsto theextentnotallowedRemunerationtopartner sdisallowedU/s40(b)Scientificresearchexp enditure.(onlyweightedelement)Exemptions u/s10/10A/10 BDeductions U/s 80IA / IB / ICFinancial Lease (Circular No. 2 dtd. 9thFeb 2001 post AS 19tax position)Additional Depreciation on RevaluationPermanent Difference 38 Amortization of goodwill considered as disallowable expensePersonal expenditure disallowed by tax authoritiesPenalty(Notbeingcompensatory) PaymentsdisallowedU/s40(A)(3)Donationsto theextentnotallowedRemunerationtopartner sdisallowedU/s40(b)Scientificresearchexp enditure.

7 (onlyweightedelement)Exemptionsu/s10/10A /10 BDeductions U/s 80IA / IB / ICFinancial Lease (Circular No. 2 dtd. 9thFeb 2001 post AS 19tax position)Additional Depreciation on RevaluationAS 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeRecognition & Measurement15of 38AS 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeSTIAI+/-PD+/-TDTIC omputation of DTCT =IT on TI (Applicable tax rates/laws)DT =IT on (+\-TD) (Latest known tax rates/laws)TE = CT +DT if a debit (otherwise it is a TS)16of 38 STIAI+/-PD+/-TDTIAS 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeCase Study -1 Computer Pur.

8 ValueTax Rate(Rs. In Crores)Co's ActIT Act5040%60%30%As as 31st March12345678910 PBT - AI1001001001001001001001001001001000 Add: Depreciation - A/c's20127432110050 Less: Depreciation - IT30125210000050 Total Income - TI901001021021021011011011001001000TD-be ing Depn differential-100222111000CT -30% of IT27303131313030303030300DT-30% of TD-30111000000 Tax Exp.(CT-DT)30303030303030303030300TE= IT on (AI+/-PD)30303030303030303030300 Depreciation Rate17of 38 Case Study -1 Computer Pur. valueTax Rate(Rs. In Crores)Co's ActIT Act5040%60%30%As as 31st March12345678910 PBT - AI1001001001001001001001001001001000 Add: Depreciation - A/c's20127432110050 Less: Depreciation - IT30125210000050 Total Income - TI901001021021021011011011001001000TD-be ing Depn differential-100222111000CT -30% of IT27303131313030303030300DT-30% of TD-30111000000 Tax Exp.

9 (CT-DT)30303030303030303030300TE= IT on (AI+/-PD)30303030303030303030300 Depreciation RateAS 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeCase Study -2(Rs. In Crore s)Co's ActIT Act5040%60%30%As as 31st March12345678910 PBT - AI100100-50100100100100100100100850 Add: De pre ciation - A/c's20127432110050 43B disallowance507000900021 40A(3) disallowance10111213141516171819145Le ss: De pre ciation - IT30125210000050 43B disallowance050070009021 CF LOSS29 Se e xe mption202020202020202020180 Total Income - TI8586-29668996106988999815TD-5-592-5110 1-900CT -IT on TI262620272932292730244DT-30% of TD-2-231-2030-300DT-30% of CF LOSS9-9 Tax (Saving)(CT-DT)2727-11282829292929302451 8of 38 Case Study -2(Rs.)

10 In Crore s)Co's ActIT Act5040%60%30%As as 31st March12345678910 PBT - AI100100-50100100100100100100100850 Add: De pre ciation - A/c's20127432110050 43B disallowance507000900021 40A(3) disallowance10111213141516171819145Le ss: De pre ciation - IT30125210000050 43B disallowance050070009021 CF LOSS29 Se e xe mption202020202020202020180 Total Income - TI8586-29668996106988999815TD-5-592-5110 1-900CT -IT on TI262620272932292730244DT-30% of TD-2-231-2030-300DT-30% of CF LOSS9-9 Tax (Saving)(CT-DT)2727-1128282929292930245A S 22 Accounting for Taxes on IncomeAS 22 Accounting for Taxes on IncomeCas e Study #3 Fixed Assets & DepreciationCo.