As 22-bose

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<ul><li> 1. Taxes on IncomeAS-22 By Shankar Bose Inspector of Income-taxMSTU, Puri</li></ul> <p> 2. Taxes on Income Accounting income and taxable income for aperiod are seldom the same Differences between the two are on accountof: Permanent Differences Timing Differences 3. Permanent Differences Permanent differences are those which arisein one period and do not reversesubsequently, e.g., an income exempt fromtax or an expense that is not allowable as adeduction for tax purposes 4. Timing Differences Timing differences are those which arise inone period and are capable of reversal in oneor more subsequent periods. 5. Timing DifferencesYear 1 Year 2 Year 3 Profit before dep.300300 300 Depreciation (SLM)100100 100 Profit before tax 200200 200 Taxable IncomeNIL300 300 Tax Provision(30%) NIL9090 Net Profit 200 110 110 6. Timing differences Timing differences cause a distortion incomputation of results of operations for aperiod with consequent effect on balancesheet if their future tax effects are notaccounted for. 7. Timing Differences Examples of Timing differences: expenditure covered by section 43B of Income-taxAct expenditure deferred in accounts but allowed fullyfor tax purposes in year of incurrence provisions made in accounts but allowed for taxpurposes only when liabilities actually crystallise ina subsequent year 8. Timing Differences Examples of timing differences (contd.) differences in depreciation charge due todifferences in depreciable amount, depreciationrate or method, or the manner of calculatingdepreciation income recognized in accounts but taxed in lateryears, e.g., interest accrued but not due oninvestments Taxable v. Deductible timing differences 9. AS 22 AS 22 seeks to redress the distortionscaused by traditional method of accountingfor income-taxes (taxes payable method) byrequiring the adoption of deferred taxaccounting in respect of timing differences Timing differences v. Temporary differences 10. AS 22 Supersedes the earlier Guidance Note Becomes mandatory in a phased manner 11. Date of Mandatory Application Mandatory in respect of financial yearscommencing April 1, 2001, for enterprises listed/inthe process of listing, and for all enterprises of agroup where parent presents consolidatedfinancial statements and any of the enterprises islisted/in the process of listing In respect of companies not covered above,mandatory in respect of accounting periodscommencing April 1, 2002 12. Date of Mandatory Application In respect of all other enterprises, mandatory inrespect of accounting periods commencing April 1,2003 Can an enterprise apply the Standard from anearlier date? 13. Treatment of Taxes on Income Tax expense (saving) should be included indetermining net income Tax expense (saving) should comprise Current tax (I.e., provision for tax payable ascomputed traditionally), and Tax effects of all timing differences, subject toconsideration of prudence in recognition ofdeferred tax assets 14. Recognition of Timing Differences Deferred tax assets should be recognizedand carried forward only if their realization isreasonably certain, I.e., sufficient futuretaxable income is likely to be available foroffset. However, in the event of there beingunabsorbed depreciation or carried forwardtax losses, deferred tax assets can berecognized only if their realization is virtuallycertain based on convincing evidence 15. Recognition of Timing Differences Unrecognized deferred tax assets need to bere-assessed at each balance sheet date.Previously unrecognized assets are to berecognized if reasonable/virtual certainty, asthe case may be, of realization is nowavailable 16. Recognition of Timing Differences Tax effect of accumulated timing differencesto be recalculated every year using tax ratesand tax laws that have been enacted orsubstantially enacted In case of slab rates, average rate to beused. Discounting of deferred tax assets/liabilitiesnot permitted 17. Review of Deferred Tax Assets Carrying amount of deferred tax assetsshould be reviewed at each balance sheetdate and to the extent the realization is notreasonably/virtually certain, the asset shouldbe written down. Such write-down may besubsequently reversed to the extentrealization becomes reasonably/virtuallycertain 18. Disclosure Assets and liabilities representing current taxshould be offset if: legal right of set off exists; assets and liabilities are intended to be settled on a net basis 19. Disclosure Assets and liabilities representing deferredtax should be offset if: legal right of set off exists; assets and liabilities relate to taxes levied by samegoverning taxation laws Deferred tax assets and liabilities to bedistinguished from current tax, current assetsand current liabilities and presented under aseparate heading in balance sheet 20. Disclosure Disclose major components of deferred taxassets and liabilities Disclose nature of evidence supportingrecognition of deferred tax assets in the eventof there being unabsorbed depreciation orcarried forward tax losses 21. Transitional Provisions On first implementation of the standard, thenet deferred tax balance accumulated prior toadoption of the standard should be adjustedagainst revenue reserves 22. Thanks </p>