Treatment of Deferred Tax Asset

Open uri20170510 32134 ng4pv?1494421709 SONIYA asked over 3 years ago

Depreciation of a company as per Companies Act, 2013 exceeds the amount of depreciation as per Income Tax Act, 1961. The company has no MAT credit. Please suggest as to how to treat the amount of Deferred Tax Asset in the Books Of Accounts.

    1       0 Answer Now Comment Report
Aarthi.P commented over 1 year ago

Dear all, I have a doubt regarding DTA recognition., In the FY ended 31.3.14., Deferred tax liability of around Rs 100000 is recognised. Due to difference in WDV of Fixed Assets as per Income tax Act and Cos Act 2013., Deferred tax asset of around Rs 60000 for Fy yr ended 31.3.15 comes as per Balance Sheet approach. Now only the DTL of Rs 100000 has been reversed. No DTA has been recognised . Is it ok to not recognise DTA. The company has been earning profits in the previous years. In this case virtua certainty of sufficient taxble income is required right? How to determine virtual certainty? Kindly clarify

6 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Anil Dhawan answered almost 3 years ago

this is in response to your doubt on Treatment of Deferred Tax Asset, as you said Depreciation as per companies act is exceeding Depreciation as per IT Act, here you have to pay more tax than the tax that would have arise if you would have claimed depreciation as per companies act, as it just Timing Difference so undoubtedly it will be your Asset( Deferred Tax Asset) if earlier in your books there is Deferred Tax liability you have to set off and you have to show the net amount that may lead to Deferred Tax Asset or Deferred Tax Liability depending on the Amounts. RECOGNITION CRITERIA As per **AS 22 Deferred Tax Asset has to be recognized if only there is virtual certainty supported by convincing evidence regarding availability of profits** it means if you have to recognize DTA you should be supported by evidence that your organisation will have profits in future to set off Deferred Tax Asset. here one thing you should observe is i said VIRTUAL CERTAINTY it means it should not be just perception like i believe/i hope ther will be profits in future, it should be a matter of FACT where you are supported by strong evidence.

    0       0 Comment Report
Important Note – Preparing for CA Final?
CAKART provides Indias top faculty each subject video classes and lectures – online & in Pen Drive/ DVD – at very cost effective rates. Get video classes from CAKART.in. Quality is much better than local tuition, so results are much better.
Watch Sample Video Now by clicking on the link(s) below – 
For any questions Request A Call Back  
Open uri20170510 32134 1c996lj?1494421732 Anil answered almost 3 years ago

Deferred tax should be recognised for all the timing differences, subject to the consideration of prudence in respect of deferred tax assets as set out in paragraphs 15-18. Explanation: (a) The deferred tax in respect of timing differences which reverse during the tax holiday period is not recognised to the extent the enterprise’s gross total income is subject to the deduction during the tax holiday period as per the requirements of sections 80-IA/80- IB of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’). In case of sections 10A/10B of the Act (covered under Chapter III of the Act dealing with incomes which do not form part of total income), the deferred tax in respect of timing differences which reverse during the tax holiday period is not recognised to the extent deduction from the total income of an enterprise is allowed during the tax holiday period as per the provisions of the said sections. (b) Deferred tax in respect of timing differences which reverse after the tax holiday period is recognised in the year in which the timing differences originate. However, recognition of deferred tax assets is subject to the consideration of prudence as laid down in paragraphs 15 to 18. (c) For the above purposes, the timing differences which originate first are considered to reverse first. The application of the above explanation is illustrated in the Illustration attached to the Standard. 352 AS 22 14. This Standard requires recognition of deferred tax for all the timing differences. This is based on the principle that the financial statements for a period should recognise the tax effect, whether current or deferred, of all the transactions occurring in that period. 15. Except in the situations stated in paragraph 17, deferred tax assets should be recognised and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. 16. While recognising the tax effect of timing differences, consideration of prudence cannot be ignored. Therefore, deferred tax assets are recognised and carried forward only to the extent that there is a reasonable certainty of their realisation. This reasonable level of certainty would normally be achieved by examining the past record of the enterprise and by making realistic estimates of profits for the future.

    0       0 Comment Report
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 ASHOK answered over 3 years ago

hello , IN your condition if the asset is old and already deferred tax liability is there in books because of this asset then in Current year the `deferred tax liability` will be reversed and If it in new timing difference than `deferred tax asset` will be create.

    1       0 Comment Report
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 harish answered over 3 years ago

Hi Soniya this is in response to your doubt on **Treatment of Deferred Tax Asset**, as you said Depreciation as per companies act is exceeding Depreciation as per IT Act, here you have to pay more tax than the tax that would have arise if you would have claimed depreciation as per companies act, as it just **Timing Difference** so undoubtedly it will be your Asset**( Deferred Tax Asset)** if earlier in your books there is Deferred Tax liability you have to set off and you have to show the net amount that may lead to Deferred Tax Asset or Deferred Tax Liability depending on the Amounts. RECOGNITION CRITERIA **As per **AS 22** Deferred Tax Asset has to be recognized if only there is virtual certainty supported by convincing evidence regarding availability of profits** it means if you have to recognize DTA you should be supported by evidence that your organisation will have profits in future to set off Deferred Tax Asset. here one thing you should observe is i said VIRTUAL CERTAINTY it means it should not be just perception like i believe/i hope ther will be profits in future, it should be a matter of FACT where you are supported by strong evidence. DISCLOSURE As per Revised Schedule III (earlier Schedule VI) it has to be disclosed as a line item under Non Current Investments.

    2       0 Comment Report
Open uri20170510 32134 ng4pv?1494421709 SONIYA answered over 3 years ago

**Treatment of Deferred Tax Asset in Cash Flow Statement :-**Under direct method it is not presented in cash flow since it is a non cash item and under indirect method , any increase in a deferred tax asset is subtracted form profit (loss) before tax and any decrease in a deferred tax asset is added back to net profit (loss). **Treatment of Deferred Tax Asset in Profit & Loss Account :** Journal Entry : Deferred tax Asset A/C dr To Profit & Loss A/c **Treatment of Deferred tax asset in Balance sheet :** Deferred tax assets is disclosed after the head ‘Investments’ on the face of the balance sheets. **Note :** Deferred tax assets are recommended to be created only when there is virtually certain that there will be taxable income in future years (para 17 of AS 22).

    1       0 Comment Report
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Manoj answered over 3 years ago

Hello, If the Depreciation as per Companies Act 2013 exceeds the amount of depreciation then it lead to Deferred Tax Asset. On the difference amount you have to calculate the tax and that amount will be your Deferred Tax Asset. Since it is timing difference it will get reverse in the coming future. To show the amount as Deferred Tax asset there should be confirm that company will have sufficient profit in future that it can absorbs the difference that has been due to the Depreciation. Since it is a depreciation in future it benefit you will get, so you can create it. DTA should be disclosed separately after the head Investment For more details you can refer AS 22 Accounting for Taxes on Income

    1       0 Comment Report
Get Notifications
Videos
Books
Notes
Loading
SIGN UP
Watch best faculty demo video classes

These top faculty video lectures will
help u prepare like nothing else can.