Difference Between AS 22 and Ind AS 12

Accounting Standard 22: This standard prescribes the accounting treatment of taxes on income and follows the concept of matching expenses against revenue for the period. The concept of matching is more peculiar in cases of income taxes since in a number of cases, the taxable income may be significantly different from the income reported in the financial statements due to the difference in treatment of certain items under taxation laws and the way it is reflected in accounts. Check out difference between Accounting Standard 22 and Indian Accounting Standard 12 (IndAS 12).

Matching of such taxes against revenue for a period poses special problems arising from the fact that in a number of cases, taxable income may be significantly different from the accounting income. This divergence between taxable income and accounting income arises due to two main reasons

Firstly, there are differences between items of revenue and expenses as appearing in the statement of profit and loss and the items which are considered as revenue, expenses or deductions for tax purposes, known as Permanent Difference.

Secondly, there are differences between the amount in respect of a particular item of revenue or expense as recognised in the statement of profit and loss and the corresponding amount which is recognised for the computation of taxable income, known as Timing Difference.

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Ind AS 12 Income Taxes

Ind AS 12 prescribes the accounting treatment for income taxes. For the purposes of this Standard, income taxes include all domestic and foreign taxes which are based on taxable profits. Income taxes also include taxes, such as withholding taxes, which are payable by a subsidiary, associate or joint venture on distributions to the reporting entity.

The principal issue in accounting for income taxes is how to account for the current and future tax consequences of:

  • (a) the future recovery (settlement) of the carrying amount of assets (liabilities) that are recognised in an entity’s statement of financial position; and
  • (b) transactions and other events of the current period that are recognised in an entity’s financial statements.

Ind AS 12 also deals with the recognition of deferred tax assets arising from unused tax losses or unused tax credits, the presentation of income taxes in the financial statements and the disclosure of information relating to income taxes.

Ind AS 12 is based on balance sheet approach. It requires recognition of tax consequences of difference between the carrying amounts of assets and liabilities and their tax base.

Difference Between AS 22 and Ind AS 12

AS 22 IND AS 12
Less disclosures required as compared to IND AS 12 More disclosures required as compared to AS 22
Provides guidance regarding tax rates to be applied/used for measuring deferred tax assets/liability when a company pays tax under section 115JB. Does not specifically deal with this aspect.
AS 22 explains the concept of virtual certainty, suported by convincing evidence and states that the deferred tax assets, arising as a result of unabsorbed depreciation and carry forward of losses shall be recognised only to the extent that there is virtual certainty, supported by convincing evidence. The concept of virtual certainty has been dispensed with, by IND AS 12 and hence, there is no such explanation under IND AS 12.

AS 22 provides guidance on recognition of deferred tax in case of:

  • Tax Holiday under Sections 80-IA and 80-IB
  • Tax Holiday under Sections 10A and 10B of the Income Tax Act, 1961.
  • Loss under the head ‘capital gains’.
Ind AS 12 does not specifically deal with these situations.
AS 22 does not deal with this aspect. Ind AS 12 provides guidance about how an entity should deal with tax consequences arising as a result of change in its own tax status or in the tax status of its shareholders.
AS 22 follows an “Income statement” approach. It focuses on the differences between taxable profit and accounting profit, which originate in one period and are subject to reversal in subsequent period. Hence, deferred tax expense or benefit is computed first and then the corresponding deferred tax asset or liability is arrived at. IND AS 12 follows “Balance Sheet” approach. It focuses on the differences between the book balance and tax balance of assets and liabilities. Such differences are called timing differences. Hence, deferred tax asset or liability is computed first and then the corresponding deferred tax expense or saving is arrived at.
Deferred taxes are not recognised on such eliminations in IGAAP. Under Ind AS, deferred taxes are recognized on temporary differences that arises from the elimination of profits and losses resulting from intra group transactions.
It does not deal with this aspect. IND AS 12 states that DTA/DTL arising from revaluation of assets shall be measured on the basis of tax consequences arising on the sale of the asset, rather on use.
Existing AS 22 does not specifically deal with this aspect.

The current tax expense as well as the deferred tax income/expense is ideally recognised in the statement of profit or loss for the period. But, if the deferred tax income or expense arises from a transaction or an event which is disclosed either in:

  • the Statement of Other comprehensive income or
  • equity

then in such cases, the deferred tax expense or income is also recognised in other comprehensive income or in equity, as appropriate.