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AS 22
ACCOUNTING OF TAXES ON INCOME
Objective: The
objective of this Standard is to prescribe accounting treatment
for taxes on income. ‘Taxes on income’ is one of the significant
items in the statement of profit and loss of an enterprise. In
accordance with the matching concept, taxes on income are
accrued in the same period as the revenue and expenses to which
they relate.
Scope: Taxes on
income include all domestic and foreign taxes which are based on
taxable income. This
Standard does not specify when, or how, an enterprise should
account for taxes that are payable on distribution of dividends
and other distributions made by the enterprise.
Definitions:
Accounting income/ (loss):
It is the net profit or loss for a period, as reported in the
statement of profit and loss, before deducting income tax
expense or adding income tax saving.
Taxable income/ (tax loss):
It is the amount of the income (loss) for a period, determined
in accordance with the tax laws, based upon which income tax
payable (recoverable) is determined.
Tax expense/ (tax saving):
It is the aggregate of current tax and deferred tax charged or
credited to the statement of profit and loss for the period.
Current tax:
It is the amount of income tax determined to be payable
(recoverable) in respect of the taxable income (tax loss) for a
period.
Deferred tax:
It is the tax effect of timing
differences.
Timing differences are the differences between taxable income
and accounting income for a period that originate in one period
and are capable of reversal in one or more subsequent periods.
Permanent differences are the differences between taxable income
and accounting income for a period that originate in one period
and do not reverse subsequently.
Disclosure requirements: The
following should be disclosed: In the
Balance Sheet: Deferred Tax
Asset should be shown after the head “INVESTMENT” and Deferred
Tax Liability should be shown after the head “UNSECURED LOAN”. Current Tax
assets and liabilities should be separately shown with
Deferred Tax assets and
liabilities. Deferred Tax
asset is set-off with deferred tax
liabilities when the enterprise has a legally enforceable right
to set-off assets against liabilities representing current tax;
and the deferred tax assets and the deferred tax liabilities
relate to taxes on income levied by the same governing taxation
laws. The nature
of the evidence supporting the recognition of deferred tax
assets should be disclosed, if an enterprise has unabsorbed
depreciation or carry forward of losses under tax laws. |
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