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As 22 deferred tax assets/liabilities

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 asked

assets/liabilitiesProvisions are disallowed in income tax. Why are they considered to calculate deferred tax assets?

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Open uri20170510 32134 ng4pv?1494421709 answered

Provisions for Asset / Liabilities are disallowed in income tax still they considered to calculate deferred tax assets/ liabilities because of chances of reversal in future years . to be simple when we create provision for current year taxation we term it as provision for taxation in Profit and loss Account , and if the provision is made to meet the liability of future taxation we term it as deferred tax asset / liability. Deferred Tax Asset / liability arises because of difference in profit as per profit and loss account and profit computed under income tax under the chapter PGBP. Like for example the depreciation charged on assets when making company final accounts we take rate prescribed under company law and for computing taxable income we take rate of depreciation as per income tax law ,because of rate difference the profit as per book of accounts and profit under income tax law ( say taxable income) will either increase or decrease so company will definitely have a tax Liability of that much in the future years. This is because in the years to come the Depreciation as per Income Tax Act will be lesser that the Depreciation as per Books of Accounts. Hence in these years the Company will have to create a Deferred Tax Asset.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

AS 22 Deferred Tax Assets/Liabilities First of all you should understand that allow ability/ disallow ability of a particular provision is governed by Income tax act 1961 whereas deferred tax assets/liabilities are calculated as per AS22. The provision on assets/liability doesn't affect the calculation of deferred tax assets or liabilities, because provisions are disallowed in income tax and are also not taken in calculation of deferred tax assets/liability because its disallowability creates a permanent difference in terms of AS22.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

In addition to answer , & on timing difference deferred tax assets/liability arise , no deferred tax/liability on permanent difference such like Donation which is permanent difference.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

Provisions are disallowed in Income Tax Act. But as per Accounting Standards we have to create provisions in the Books of Acounts. Both are different and you keep provision for Deferred Tax because of Difference ( Timing and Permanent ) difference between Income Tax books and as per Books of Accounts.

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