by Ind AS 12, “Income Taxes,” addresses the accounting for income taxes, which includes both current and deferred tax. The recognition, measurement, and accounting of current tax effects under Ind AS 12 involve specific considerations to ensure that the tax expense or benefit in the financial statements accurately reflects the period in which the underlying income or expenses are recognized.
Recognition of Current Tax
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Basic Principle:
Current tax for current and prior periods shall, to the extent unpaid, be recognized as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess shall be recognized as an asset.
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Tax Expense (Benefit):
The tax expense (benefit) related to profit or loss includes the amount of current tax payable (recoverable) in respect of the taxable profit (tax loss) for a period.
Measurement of Current Tax
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Calculation Basis:
The measurement of current tax liabilities (assets) is based on the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The computation of taxable profit (tax loss) involves applying tax rates to the accounting profit (loss) and making adjustments for items that are tax-deductible or taxable in different periods, or not at all.
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Use of Estimates:
The calculation of current tax may involve estimates if the taxation authorities have not finalized an assessment for the period. Any difference between the tax finally assessed and the amount previously accounted for is adjusted in the period in which the assessment is finalized.
Accounting of Current Tax Effects
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Recognition in Profit or Loss:
Current tax expense (benefit) is usually recognized as part of the profit or loss for the period. However, tax related to items recognized outside profit or loss (either in other comprehensive income or directly in equity) is also recognized outside profit or loss accordingly.
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Adjustments of Prior Periods:
Corrections of errors or adjustments of estimates related to prior periods are recognized as part of the current period’s tax expense (benefit). This ensures that the tax expense (benefit) reflects the latest information available.
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Tax Payable and Receivable:
The amount of current tax payable (receivable) is included in the balance sheet as a tax liability (asset) unless the tax is withheld at source and cannot be refunded.
- Offsetting:
Current tax assets and liabilities can only be offset if there is a legally enforceable right to offset and the amounts are related to taxes levied by the same taxation authority.
- Disclosure:
Entities are required to disclose the major components of tax expense (income) and the relationship between tax expense (income) and accounting profit in financial statements. This includes explaining any significant estimates and judgments made in determining the current tax expense (benefit).
