1. ACCOUNTING STANDARD - 22 TAXES ON INCOME J.P., KAPUR & UBERAI

2. SCOPE APPLICABLE FROM: 01.04.2001 - Listed enterprises or in the process of issuing equity or debt securities 01.04.2002 - Companies not covered as above 01.04.2003 - All other enterprises.

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. TAXES ON INCOME TAXES ON INCOME Accounting income and taxable income for a period are seldom the same. Differences between the two are on account of : u Permanent Differences Timing Differences J.P., KAPUR & UBERAI

5. Permanent Differences Permanent Differences J.P., KAPUR & UBERAI Permanent differences are those whicharise 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. Timing Differences Timing Differences Timing differences are those which arise in one period and are capable of reversal in one or more subsequent periods. For e.g., Depreciation, Sales Tax, Bonus etc., U/s 43B J.P., KAPUR & UBERAI

7. TREATMENT 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. Assuming a tax rate of 40%( no surcharge) 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: contd…. J.P., KAPUR & UBERAI

8. TREATMENT Particulars I IIIII Profit before Depreciation200200200 Depreciation as per books 50 50 50 Profit before taxes150150150 Less: Tax Expense 20 80 80 DEFFERED TAX 40(20)(20) TOTAL 60 60 60 Profit after Tax 90 90 90 DEFFERED TAX LIABILITY 40 20 0 J.P., KAPUR & UBERAI

9. RECOGNITION For determining the net profit or loss for the period, current tax and deferred tax have to be included. Deferred tax assets and liabilities are usually measured using the tax rates and tax laws for the time being in force. Deferred tax assets should be recognised and carried forward only to the extent of the deferred taxes those are realisable in future. J.P., KAPUR & UBERAI

10. MEASUREMENT CURRENT TAX At the amount that is expected to be paid to the taxation authorities. DEFERRED TAX ASSETS AND LIABILITIES At the tax rates and tax laws that have been enacted at the balance sheet date. J.P., KAPUR & UBERAI

11. DISCLOSURE uDisclose major components of deferred tax assets and liabilities. uDeferred tax assets and liabilities should be distinguished from assets and liabilities representing current tax for the period uDisclose nature of evidence supporting recognition of deferred tax assets in the event of there being unabsorbed depreciation or carried forward losses. J.P., KAPUR & UBERAI

12. Transitional Provisions On first implementation of the standard, the net deferred tax balance accumulated prior to adoption of the standard should be adjusted against revenue reserves. J.P., KAPUR & UBERAI