Navigating Ind AS 12: Compliance Updates for Deferred Taxes

Introduction

Ind AS 12 is the basis for income tax accounting in India. New amendments for 2023 and 2024 mandate private limited companies to adhere to revised rules regarding deferred tax recognition, measurement, and disclosure. This in-depth guide will shed light on the principles and compliance measures necessary for navigating these changes.

Scope and Key Principles

Applicable to:

All income taxes on taxable profits, including withholding taxes.

Excluded from coverage:

Sales tax, VAT, and other non-income taxes.

Deferred Tax Liabilities and Assets: Key Developments

Taxable Temporary Differences

Deferred Tax Liabilities (DTL): Must recognize DTL for all taxable temporary differences unless exempted, e.g., initial recognition of goodwill.

Deductible Temporary Differences

Deferred Tax Assets (DTA): Recognize DTA only if future taxable profits will be in a position to utilize them.

Unused Tax Losses/Credits

DTA is only realized when future profit realization is probable.

2023-2024 Amendments: Major Changes

Pre-2023 Rule	Current Rule (2023/2024)
IRE broadly applicable	IRE does not apply to transactions that give rise to balanced taxable and deductible differences, e.g., leases and decommissioning exposures.
Generic guidance on uncertain tax	Mandatory use of either most probable amount or expected value for uncertainty resolution.
Lack of insurance-specific disclosure	More DTA/DTL disclosures required for insurance contracts under Ind AS 117.

Measurement and Presentation

Current Tax: Calculated based on the amount payable or receivable, using the tax rates enacted at the date of reporting.
Deferred Tax: Quantified based on the estimated tax rates that will apply when the respective asset is realized or the liability is settled.
No Discounting: The deferred taxes should not be discounted.
Set-off: Permitted only when there is an intention and legal right to settle net off.
Disclosure: Mandate separate disclosure of current and deferred taxes with detailed breakdown and description.

Areas of Critical Judgement

Revalued Land/Assets: DTL shall be estimated on the basis of recovery through sale.
Uncertain Tax Treatments: Either most likely outcome or expected value approach can be used; reassessment must be done regularly.
Insurance Contracts: Call for greater disclosures and valuation of DTA/DTL under Ind AS 117 guidelines.

2025 Compliance Tips

Automation: Utilize accounting software to facilitate monitoring of temporary differences.
Regular Reviews: Conduct regular reviews of DTA/DTL in each reporting period.
Stay Informed: Stay informed with news from the Ministry of Corporate Affairs (MCA) regarding new notifications and amendments.
Transparency: Openly disclose assumptions and judgments in financial statements.

Conclusion

Compliance with Ind AS 12, more particularly the 2023-2024 amendments, is crucial to provide transparent and correct income tax accounting. Private limited companies must establish robust systems for recognition, measurement, and disclosure of deferred taxes and pay special attention to unique sector effects and ongoing regulatory changes.