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Object of this standard :
In numbers of cases , accounting income (profit as per books of account or P&L) is different from taxable income (income calculation for tax liability as IT act) . it is due to expenses debited in P&L a/c but not allowed as per IT ACT and difference in depreciation rates between company act and IT act. Said differences are of two types
- Timing difference : Difference between taxable income and income as per P&L a/c is time being in nature and will get reversed in subsequent years like difference in Depreciation between IT act and company act
- Permanent difference : It is permanent in nature and will not get reversed in subsequent years like cash payment >20K etc
To calculate and recognising such differences in financial statement is an object of this standard
As per this accounting standard the income tax expense should be treated just like any other expense on accrual basis irrespective of the timing of payment. Tax expense consist of current tax and deffered tax.
Current Tax : it is amount of income tax
Deffered Tax : Deffered tax is a tax effect of timing difference. It may be liability or Assets
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Deferred Tax Liability (DTL) |
Deferred Tax Assets (DTA) |
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It is provision for future taxation . It is made when we have to pay less tax in current year but in future we will pay more tax. So we create provision for future tax which we will pay Example Depreciation as per company act is less than Income tax act
P&L A/c Dr To DTL |
It is recognition of future tax benefit which we will receive. It is made when we have to pay more tax in current year but in future we will be paying less tax. So we will create DTA as we will receive tax benefit in future. Example
DTA A/c Dr. To P&L |
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Case 1 |
Case 2 |
Case 3 |
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If TDS deducted on expenses
Income - 1000 Expenses - 700 Profit – 300
Tax 30% = Rs.90
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If TDS not deducted on entire expenses amount Rs.700
Calculate tax Direct Method Income - 1000 Expenses - 0 Profit - 1000
Tax 30% - 300
Indirect method Net Profit – 300 Add : Expenses not Allowed - 700
Profit - 1000
Tax 30% - 300 |
Out of 700, on Rs.200 TDS not deducted
Profit - 300 Add : expenses not Allowed - 200
Profit - 500
Tax 30% - 150 |
Section 43B of Income tax act : Certain expenses like interest on bank loan, bonus, PF etc allowed only if paid by Income tax return date (30 sept 2015 for 2014-15), if not paid, will be allowed in next year
Example : Sales Rs.100000, expenses -80000, profit – 20000, tax 30% - 6000. If the above expenses include interest on bank loan of Rs.10000 which has not been paid to bank by sept 2015.
| Calculate taxable income | |
| Profit as per books | 20000 |
| Add : expenses not allowed | |
| Intt to Bank | 10000 |
| Taxable profit | 30000 |
| Tax 30% | 9000 |
| Current Tax computation format (Indirect Method) | ||
| Net profit as per books (tally) | Rs. | |
| Add : Expenses disallowed : | ||
| Depreciation as per company act | Timing Difference | Rs. |
| TDS not deposited of current year | Rs. | |
| Section 43B expenses not deposited in current year | Rs. | |
| Income tax/wealth tax/deferred tax | Permanent difference | |
| Cash payment >20000 not allowed | ||
| Unascertained provision (prov for bad debts) | ||
| Loan given >20000 in cash | ||
| Illegal expenses | ||
| Personal expenses | ||
| Less : Expenses allowed : | ||
| Depreciation as per Income tax act | Timing difference | |
| TDS of last year deposited in current year | ||
| Section 43B expenses of last year deposited in current year | ||
| Taxable Profit : | ||
Note : DTA or DTL is only made of timing difference not permanent difference.
