web analytics

Object of this standard :

In numbers of cases , accounting income (profit as per books of account or P&L) is different from taxable income (income calculation for tax liability as IT act) . it is due to expenses debited in P&L a/c but not allowed as per IT ACT and difference in depreciation rates between company act and IT act. Said differences  are of two types

  1. Timing difference : Difference between taxable income and income as per P&L a/c is time being in nature and will get reversed in subsequent years like difference in Depreciation between IT act and company act
  2. Permanent difference : It is permanent in nature and will not get reversed in subsequent years like cash payment >20K etc

 

To calculate and recognising such differences in financial statement is an object of this standard

As per this accounting standard the income tax expense should be treated just like any other  expense on accrual basis irrespective of the timing of payment. Tax expense consist of current tax and deffered tax.

Current Tax : it is amount of income tax

Deffered Tax : Deffered tax is a tax effect of timing difference. It may be liability or Assets

Deferred Tax Liability (DTL)

Deferred Tax Assets (DTA)

It is provision for future taxation . It is made when we have to pay less tax in current year but in future we will pay more tax. So we create provision for future tax which we will pay

Example

Depreciation as per company act is less than Income tax act

 

 

 

 

P&L    A/c       Dr

         To DTL

It is recognition of future tax benefit which we will receive. It is made when we have to pay more tax in current year but in future we will be paying less tax. So we will create DTA as we will receive tax benefit in future.

Example

  1. Depreciation as per company act is more than the income tax act
  2. If TDS not deposited , Expenses will be disallowed  but in future deposited then expenses will be allowed

 

DTA    A/c    Dr.

         To P&L

Case 1

Case 2

Case 3

If TDS deducted on expenses

 

Income -  1000

Expenses -  700

Profit – 300

 

Tax 30% = Rs.90

 

If TDS not deducted on entire expenses amount Rs.700

 

Calculate tax 

Direct Method

Income   - 1000

Expenses -  0

Profit  - 1000

 

Tax 30%  - 300

 

Indirect method

Net Profit                     – 300

Add : Expenses not

Allowed                        -  700

 

Profit                             -  1000

 

Tax  30%   - 300

Out of 700, on Rs.200 TDS not deducted

 

Profit                                -  300

Add : expenses not

Allowed                           -  200

 

Profit                              -  500

 

Tax 30%                         -  150

Section 43B of Income tax act : Certain expenses like interest on bank loan, bonus, PF etc allowed only if paid by Income tax return date (30 sept 2015 for 2014-15), if not paid, will be allowed in next year

Example : Sales Rs.100000, expenses -80000, profit – 20000, tax 30% - 6000. If the above expenses include interest on bank loan of Rs.10000 which has not been paid to bank by sept 2015. 

Calculate taxable income
Profit  as per books 20000
Add : expenses not allowed  
Intt to Bank 10000
Taxable profit 30000
Tax 30% 9000

 

Current Tax computation format (Indirect Method)
Net profit as per books (tally)   Rs.
     
Add : Expenses disallowed :    
Depreciation as per company act Timing Difference Rs.
TDS not deposited of current year Rs.
Section 43B expenses not deposited in current year Rs.
     
     
Income tax/wealth tax/deferred tax Permanent difference  
Cash payment  >20000 not allowed  
Unascertained provision (prov for bad debts)  
Loan given  >20000 in cash  
Illegal expenses  
Personal expenses  
     
     
Less : Expenses allowed :    
Depreciation as per Income tax act Timing difference  
TDS of last year deposited in current year  
Section 43B expenses of last year  deposited in current year  
     
  Taxable Profit  :     

Note :   DTA or DTL is only made of timing difference not permanent difference.

  1. Accounts and Finance
  2. Accounts Theory
Ask Download

About the Author

CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 7 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
Jail