Deferred Tax under AS 22: Reconcile the Timing-Difference Register

Book depreciation and tax depreciation differ for three asset blocks over two years. The useful result is a working that explains the facts, the calculation or classification, and the evidence behind the conclusion. This guide shows how to prepare that working and where a reviewer should investigate before accepting the result.

Scope and applicable period

Financial reporting for FY 2025–26 under the applicable Accounting Standards (AS) framework. Assess entity-specific applicability and relief. Ind AS requirements are a separate analysis.

Verification date: 11 October 2026. Figures and rates identified as assumptions are teaching examples; apply the stated conditions and the actual facts to a real assignment.

The key principle

Under the applicable AS 22 framework, timing differences reverse in later periods; permanent differences do not. Deferred-tax recognition and measurement therefore need a difference register and evidence supporting any asset recognition. The more demanding condition concerning unabsorbed depreciation or carried-forward losses must not be replaced with an optimistic forecast. Standard-specific entity relief also needs assessment; this example assumes AS 22 recognition applies.

Worked example

The larger tax deduction reduces current taxable income but can create a future taxable reversal, explaining the liability in this simplified case. Track opening differences, additions, reversals and closing differences by item. Exclude permanent disallowances from that reversal schedule. For deferred-tax assets, document the recognition evidence and applicable criteria before measuring them. Reconcile movement with tax expense and explain rate or recognition changes separately.

A practical sequence

Confirm that AS 22, rather than Ind AS 12, is the applicable framework. Classify accounting-versus-tax differences as timing or permanent and assess recognition requirements, including the stricter evidence relevant to losses where applicable.

Measure using the applicable enacted or substantively enacted tax basis and review any entity-level relief. Reconcile opening and closing deferred-tax balances.

A tax-rate multiplication illustrates measurement but does not, by itself, establish whether an asset may be recognised.

Choose the framework before drafting the note

Recognition, measurement, presentation and disclosure are related but distinct. First establish whether the entity follows AS or Ind AS and whether company Schedule III or ICAI non-corporate guidance governs presentation. Then determine the accounting treatment and assemble the applicable disclosure. A well-formatted note cannot cure an unsupported asset, liability or income figure. Reconcile note schedules to the trial balance and preserve comparative information. Where relief applies to an entity, assess the particular standard or guidance rather than assuming that small size removes every requirement. Record significant judgement with the supporting facts.

Evidence checklist

Keep the following records linked to the same entity, period and working version. Identify missing items explicitly; a checked box should mean the document was examined and supports the stated conclusion.

• Applicable AS 22 and entity-relief assessment
• Book and tax depreciation/value records
• Difference-wise reversal schedule
• Enacted/substantively enacted rate evidence
• Asset recognition support and movement reconciliation

Common mistakes and how to avoid them

• Creating deferred tax on permanent differences. Compare the conclusion with the applicable as 22 and entity-relief assessment and resolve any conflicting facts.
• Using an illustrative rate as the company's actual rate. Trace the affected item to the difference-wise reversal schedule before finalising the working.
• Recognising loss-related assets from unsupported optimism. Use the asset recognition support and movement reconciliation to make the final position and remaining exceptions clear.

Before you finalise

Recheck the example’s assumptions against the actual assignment, resolve the identified exceptions and make the final figure or conclusion traceable to its source. Preserve the reviewed version and the reason for material changes. For this task, the asset recognition support and movement reconciliation should agree with the conclusion presented to the client, reviewer or authority.

Frequently asked question

Does every tax add-back create a deferred-tax asset? No. First determine whether it is a reversing timing difference and whether recognition criteria are met.

Sources and further reading

• ICAI Accounting Standard AS 22
• Companies Act, 2013 — India Code

Related guide: Income tax computation companies book profit vs taxable income dta dtl.