AS 22
Accounting for Taxes on
Income
Introduction to AS 22
AS 22 has been prescribed by ICAI to be applied in accounting for taxes on
income.
This standard is applied to match
differences between accounting income and taxable income
Accounting Income Taxable Income
It is the Net Profit before Tax (PBT) for a
period, as reported in the Profit and Loss It is the income on which income tax is payable, as per the Income Tax Act, 1961
Reasons for Differences
Expenses debited to P&L A/c but disallowed as per Income Tax Act
Provision for Bad/Doubtful debts allowed while calculating accounting income, but disallowed while computing taxable income
Depreciation charge applied using different rates as per Companies Act, 2013 and Income Tax Act, 1961
Incomes recognized as per accrual basis in P&L
A/c but recognized on receipt basis in subsequent
period for calculating taxable income
AS 22 is applied to mitigate the
differences listed in the previous slide
These differences can be of two types:
Timing Differences Permanent Differences
Those differences between
accounting income and taxable income which can be reversed in subsequent periods.
Eg: Depreciation allowed as per WDV method for computing
taxable income and as per SLM for computing accounting income
Those differences between
accounting income and taxable income which cannot be reversed in subsequent periods.
Eg: Donation paid in cash is
disallowed as a deduction under taxable income but allowed as an expenditure while computing
accounting income
When to apply AS 22
It only needs to be applied when there is a difference between taxable income and accounting income.
If taxable income > accounting income, it is called Deferred Tax Asset (DTA)
If accounting income > taxable income, it
is called a Deferred Tax Liability (DTL)
Difference between AS 22 and IND AS 12
Basis AS 22 – Accounting for Taxes on
Income IND AS 12 – Income Taxes
Recognition AS 22 recognizes tax effect of differences between taxable income and accounting income
IND AS 12 recognizes tax effect of differences between assets and/or liabilities and their tax base*
Approach AS 22 is based on profit or loss
statement approach IND AS 12 is based on balance sheet approach
Differences The types of differences applied are Timing Differences and
Permanent Differences
The types of differences applied are Taxable Temporary Differences and Deductible Temporary Differences.
Permanent Differences are not dealt in by this standard
Basis AS 22 – Accounting for Taxes on
Income IND AS 12 – Income Taxes
Disclosure AS 22 deals with the disclosure of
DTA/DTL in the balance sheet IND AS 12 deals with the recognition of current or deferred tax as income or expense in profit and loss
statement Revaluation of
Assets AS 22 does not cover the difference arising between
taxable income and accounting income due to revaluation of assets
IND AS 12 deals with the difference between carrying the amount of revalued asset and its tax base*
*Tax Base – A tax base is a measure upon which the assessment or determination of tax liability is based.
Eg: Taxable Income is the tax base for Income Tax
