Presentation is loading. Please wait.

Presentation is loading. Please wait.

SUB REGIONAL CONFERENCE & 19 th ANNUAL CONFERENCE of HUBLI BRANCH D eferred Taxation AS 22 and Latest Developments K.GURURAJ ACHARYA CHARTERED ACCOUNTANT.

Similar presentations


Presentation on theme: "SUB REGIONAL CONFERENCE & 19 th ANNUAL CONFERENCE of HUBLI BRANCH D eferred Taxation AS 22 and Latest Developments K.GURURAJ ACHARYA CHARTERED ACCOUNTANT."— Presentation transcript:

1 SUB REGIONAL CONFERENCE & 19 th ANNUAL CONFERENCE of HUBLI BRANCH D eferred Taxation AS 22 and Latest Developments K.GURURAJ ACHARYA CHARTERED ACCOUNTANT TELEFAX: (080)

2 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 2 of 36 ICAI Statements Standards (Mandatory) Guidance Notes (Recommendatory) Auditing & Assurance Standards (SAP) ( ) Accounting Standards ( ) A S I (29) {7 of AS 22} General Clarification (18)

3 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 3 of 36 Accounting Standard means the standard of accounting: Recommended by ICAI and Prescribed by Government in Consultation with the NACAS constituted u/s 210A(1) of the Companies Act, Accounting Standards u/s.211(3c) (wef )

4 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 4 of 36 Deviation from AS 4.(d) In our opinion, the Balance Sheet, P&L Account and the Cash Flow Statement dealt with by this report comply with the AS referred to in Sec. 211(3C) of the Companies Act, 1956 subject to the following observations: Certain Transactions are accounted on cash basis vide significant policy No. 2. Further contract works / certain consultancy works undertaken by the company are not accounted on accrual basis vide note 11 on the accounts. The extent of impact on accounts is not ascertained. Accounting Policy No. 13(b) is not in accordance with AS 10 on Fixed Assets. Certain transaction accounted under this policy has the effect of overstating value of Fixed Assets, Depreciation and profit by Rs Crores, Rs Crores and Rs Crores respectively

5 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 5 of 36 þListed/Proposed to be listed Cos þBanks, FIs, Insurance Cos þEnterprises with > 50 crores Turnover in preceding year þ> 10 crores borrowings at any time during the year þHolding & subsidiary Cos of above. Level - I þEnterprises with > 40 Lacs but < 50 crores Turnover. þ> 1 crore but < 10 crores borrowings þHolding & subsidiary cos of above. Level - II þOther than Level - I & Level - II cases Level - III w.e.f 17-Sep-2003

6 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 6 of 36 Companies listed and in the process of listing in India - including Group companies In respect of other companies not covered above In respect of all other enterprises Applicability of AS 22 (For All Levels - I / II/ III)

7 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 7 of 36 Deferred Taxes are Income Tax which arise in one period but because of Timing Difference will have to be actually paid in later years. Deferred Tax

8 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 8 of 36 Timing differences -TD- Differences between TI and AI for a period that originate in one period and are capable of reversal in one or more subsequent periods. Permanent differences -PD- are the differences between TI and AI for a period that originate in one period and do not reverse subsequently.

9 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 9 of 36 Deferred Tax Current Tax (applicable rate/law) Deferred Tax (substantively enacted rates /law) Average rate ? No Tax effect Tax Expense Taxable Income As per IT Return Rs. 70 cr Timing Difference Rs. 20 cr Permanent Difference Rs. 10 cr Accounting Income As per P&L A/c Rs. 100 cr

10 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 10 of 36 Deferred Tax Current Tax Taxable Income As per IT Return Rs. 90 cr Accounting Income As per P&L A/c Rs. 80 cr Timing Difference Reversal or DTA Rs. 20 cr (DTL) or DTA Prudence Permanent Difference Rs. 10 cr No Tax effect

11 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 11 of 36 STI AI +/- PD +/- TD TI CT = IT on TI (Applicable tax rates/laws) DT = IT on (+\- TD) (Latest known tax rates/laws) TE = CT – DT (MAT - CT) is to be finally added to TE as a special case Computation of DT

12 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 12 of 36

13 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 13 of 36

14 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 14 of 36

15 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 15 of 36 AS Taxes on Income

16 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 16 of 36 Accounting Income > Taxable Income Create DTL Accounting Income < Taxable Income Reversal of DTL or Creation of DTA s.t PRUDENCE Accounting Income = Taxable Income Neither DTA nor DTL Accounting Loss = Taxable Loss Create DTA subject to PRUDENCE DTA v/s DTL

17 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 17 of 36 Scope of AS 22 Taxes on income include all domestic and foreign taxes, which are based on taxable income Does not cover Dividend Distribution Tax.

18 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 18 of 36 Recognition of Deferred Tax Asset Consideration of PRUDENCE is a must while recognizing DTA DTA Arising due toBasis of Recognition Unabsorbed Business & Depreciation Loss Virtual Certainty (Judgment) & Convincing Evidence (Fact) ASI 9 Other than aboveReasonable Certainty

19 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 19 of 36 Not a prior period item as per AS-5 unless it was a mistake AS 22 does not mention review or re-assessment of DTL Re-Assessment v/s Review Re-Assessment (Right) Review (Duty) Relates to DTA Previously unrecognized Relates to DTA Previously recognized

20 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 20 of 36 Transitional Provisions On the first occasion, the enterprise should recognize, the deferred tax balance that has accumulated prior to adoption of this statement as DTA/DTL with the corresponding credit/charge to the revenue reserves. Non Corporate Entities : Capital Account

21 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 21 of 36 Presentation of DT Balance Sheet (ASI-7) Share capital Reserves Secured loans Unsecured loans Deferred tax liability Total Fixed assets Investments Deferred tax asset Net Current Assets Total

22 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 22 of 36 Break-up of major components of DTA / DTL to be disclosed. DTA and DTL to be set off if permissible under tax laws but to be shown separately otherwise. Evidence supporting the recognition of DTA to be disclosed, if an enterprise has Unabsorbed Depreciation / Tax Losses to be carried forward. Disclosure

23 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 23 of 36 Presentation of CT - Para 27 An Enterprise should offset assets and liabilities representing current tax if the enterprise: a) has a legally enforceable right to set off the recognized amounts; and b) intends to settle the asset and the liability on a net basis

24 Accounting Standard 22 Accounting for Taxes on Income ISSUES & LATEST DEVLOPMENTS

25 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 25 of 36 Difference in net block of fixed assets between tax and accounts - Difference in Depreciation due to Different rates / methods Pro rata treatment Vs. 180 days (in I year) Exchange fluctuation of FC liability incurred for FA purchase. - As-11(R) Vs. Sch.VI Vs. S. 43A Up to Rs assets write off under Companies Act Impairment Loss as per AS-28 Sale Proceeds Cr. to Block of Asset as per IT Act Vs. Profit / Loss on sale of FAs recognised in P&L A/c Purchase of Scientific Research Assets [35(2)] Timing Difference – Ex..

26 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 26 of 36 Expenses Dr. to P & L A/c on accrual basis but allowed on actual payment. Payments made without TDS, but disallowed for tax purposes u/s 40(a)(i) / (ia) and allowed when relevant tax is deducted & paid subsequently Expenditure U/s 43B of Income Tax Act Provision for Gratuity u/s 40A(7) Provisions made in the P&L A/c in anticipation of liabilities – allowed when liabilities crystallize Timing Difference – Ex….

27 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 27 of 36 Provision for doubtful debts / advance Provision for warranties Preliminary expenses written off fully when incurred (U/s 35D) Expenses amortized in books of Accounts over a period of years but a shorter or longer period is allowable for tax purposes Timing Difference – Ex..

28 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 28 of 36 Amortization of goodwill considered as disallowable expense Personal expenditure disallowed by tax authorities Penalty (Not being compensatory) Payments disallowed U/s 40(A)(3) Donations disallowed U/s 80G Remuneration to partners disallowed U/s 40(b) Scientific research expenditure.(only weighted element) Exemptions u/s 10/10A/10B Deductions U/s 80IA / IB / IC Financial Lease - Circular No. 2 (dtd. 9 th Feb 2001 – post AS 19 tax position) Additional Depreciation on Revaluation Permanent Difference – Ex...

29 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 29 of 36 Financial Implication of Deferred Tax: (1) Effect of Deferred tax on Income Tax (2)Effect on Current Ratio (3) Affects Net Worth – Thereby affecting - Limits under Companies Acceptance of Deposits Rules - Eligibility to make investments - Determination of Sickness for BIFR purposes (4) Affects Debt -Equity Ratio and TOL / TNW (Double edged sword)

30 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 30 of 36 (6) Affects Net Profit Ratio (PAT/Net Sales) (7) Affects EPS (8)Affects Dividend declaration - No specific reference in the Company Law on DT. (PBT loss V PAT Profit position – Impact on dividend and Audit report) (9) Affects Capital Adequacy Norms in case of banks (Tier-I & Tier-II Capital) - Capital to Risk Weighted Assets Ratio (CRAR)

31 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 31 of 36 Issues relating to DTA / DTL: (1) Accounting for Taxes on Income in case of an Amalgamation as per AS-14 (ASI 11) (2) Is it OK not to recognize DTL on the ground that the enterprise intends to carry out a major capital expansion programme in near future? (3)Is it OK not to recognize DTL on the ground that the company expects that there will be losses both for accounting and tax purposes in near future?

32 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 32 of 36 Issues relating to DTA / DTL: (4) Accounting for Taxes on Income in Interim Financial Reports as per AS-25 (5)Accounting for Taxes on Income in Consolidated Financial Statements as per AS- 21 ASI 26 : Total TE = TE in Parent Co + TE in Subsidiary Co. 4 GC 18/2002 : DT in CFS = simple aggregation of DT balances across the group

33 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 33 of 36 Issues relating to DTA / DTL: (6)ASI 3: Accounting for Taxes on Income in the situations of Tax Holiday U/S 80-IA and 80-IB of the Income-tax Act, 1961 (7)ASI 5: Accounting for Taxes on Income in the situation ofTax Holiday U/S 10A and 10B of the Income-tax Act,1961 (8) ASI 4: Losses under the head Capital Gains (9)ASI 6: Accounting for Taxes on Income in the context of S. 115JB of the Income-tax Act, 1961 – MAT credit – whether Current Tax ?

34 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 34 of 36

35 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 35 of 36 AS 22 – Conclusion -Increases transparency – Matching / accrual concept upheld -Tax effect Accounting - ensures that Tax Charge in future accounting periods is not vitiated by Timing Differences - Aligns our AS with global AS - Catch 22 standard - A Tough job for CAs certifying on DT.

36 AS 22 Accounting for Taxes on Income K.G.Acharya & Co., Chartered Accountants 36 of 36 K. GURURAJ ACHARYA TELFAX: THE BEGINNING


Download ppt "SUB REGIONAL CONFERENCE & 19 th ANNUAL CONFERENCE of HUBLI BRANCH D eferred Taxation AS 22 and Latest Developments K.GURURAJ ACHARYA CHARTERED ACCOUNTANT."

Similar presentations


Ads by Google