Deferred Tax under AS 22 and Ind AS 12: Worked Examples

Start with the applicable accounting and tax rules

Companies applying notified AS use AS 22. Companies applying Ind AS use Ind AS 12. Determine applicability from the relevant rules, including group and sector criteria. Non-company entities have separate ICAI applicability rules. Current tax is based on taxable profit for the period. The worked tax examples below are for FY 2023–24 under the Income-tax Act, 1961. For tax years starting on or after 1 April 2026, check the applicable Income-tax Act, 2025 provisions and savings; for example the late micro and small enterprise payment provision is now section 37(2)(g).

Question	AS 22	Ind AS 12
What creates deferred tax?	Reversible timing differences between accounting income and taxable income; permanent differences do not create deferred tax.	Taxable or deductible temporary differences between carrying amounts and tax bases, subject to recognition exceptions; also eligible unused tax losses and credits.
What evidence supports a deferred tax asset?	Generally reasonable certainty of sufficient future taxable income. Where there is unabsorbed depreciation or carried-forward tax loss, apply the virtual-certainty test supported by convincing evidence.	Probable availability of suitable taxable profit; recent losses are strong contrary evidence. For unused losses and credits, assess sufficient taxable temporary differences or convincing other evidence where applicable.
How is an upward revaluation treated?	The revaluation entry itself generally does not originate a profit-and-tax timing difference. Continue tracking independently reversible depreciation differences. A book uplift with no corresponding tax deduction should not be treated as a deductible timing difference.	If carrying amount exceeds tax base and no exception applies, recognise the resulting DTL. Where the revaluation is recognised in other comprehensive income, its tax generally follows it. Measure using the applicable expected manner of recovery.
How are balances presented?	Separate from current tax, using the relevant Schedule III headings. AS 22 paragraph 29 requires both a legal current-tax set-off right and tax under the same governing laws for deferred offset.	Non-current if the statements distinguish current and non-current. Apply paragraph 74’s legal right, same authority, and taxable-entity or specified settlement conditions before offset.

Classify adjustments by whether and when they reverse

Accelerated tax depreciation often creates a DTL; verify how the difference unwinds. A provision for gratuity, qualifying bonus or other expenses may give rise to a DTA if it is deductible in a later period and recognition criteria are met. Distinguish employer and employee contributions and apply each provision’s payment rules. Under section 43B(h), qualifying late micro and small supplier amounts otherwise deductible are subject to the actual-payment rule and the return deadline concession is excluded. This is a timing issue only where a later deduction remains available. Statutory interest under sections 16 and 23 of the MSMED Act is permanently non-deductible. Other permanently disallowed amounts may include qualifying fines for prohibited conduct and non-business expenditure.

A doubtful debt allowance may generate deferred tax if a later write-off is expected to qualify under sections 36(1)(vii) and 36(2); special provisions may apply. Withholding disallowances under section 40(a)(i) or (ia) may reverse after compliance if the legal conditions are met. Do not call a late or unremitted item permanent without assessing whether later deduction is possible. For each potential asset, document the reversal period, applicable tax rate and available taxable income by entity and jurisdiction.

Rate changes, loss recovery and MAT credit

Use rates and tax laws enacted or substantively enacted at the reporting date and relevant to reversal. For a qualifying section 115BAA case, 22% plus 10% surcharge on tax and 4% cess on tax and surcharge yields exactly 25.168%. Normal-regime effective rates vary with the applicable base rate, surcharge bands and marginal relief. Test when the company expects the new regime to apply and recompute affected tax bases, allowable losses and other deductions as well as the rate. Check the actual option and applicable conditions. Under Ind AS 12 tax generally follows the underlying transaction into profit or loss, other comprehensive income or equity; there is no rule that every remeasurement goes through profit or loss.

A contract can support a DTA only if it supports taxable profit, after costs, in time to use the deduction. For the AS 22 heightened test, forecasts alone are insufficient; consider concrete evidence at the reporting date and suitable reversing taxable timing differences. Review recoverability at each reporting date. A disagreement affects the audit opinion according to materiality, pervasiveness and evidence; there is no automatic disciplinary outcome.

Under AS 22, recognised MAT credit is separate from deferred tax under ICAI’s MAT guidance and depends on convincing evidence of realisation. Under Ind AS 12 it may qualify as an unused tax credit within deferred tax, subject to recognition criteria. CBDT Circular 29/2019 clarifies that carried-forward MAT credit is unavailable after exercise of the 115BAA option; remove any asset for credit that is no longer recoverable. The historical circular also distinguishes losses attributable to additional depreciation; test their eligibility separately.

Typical profit-and-loss journal entries

Movement	Debit	Credit
Increase DTL	Deferred tax expense	DTL
Increase DTA	DTA	Deferred tax credit
Reverse DTL	DTL	Deferred tax credit
Reverse DTA	Deferred tax expense	DTA

These entries assume profit-and-loss treatment. An increase in a DTA is not necessarily a tax refund, and a net movement does not determine the balance-sheet offset.

Three worked cases

1. Current and deferred tax on the manufacturing reconciliation

Precision Forgings’ FY 2023–24 accounting profit before tax is ₹5 crore. Assume a valid section 115BAA election, ordinary taxable business income only, no additional restrictions, and sufficient future taxable income for recognised DTAs. Add back ₹60 lakh book depreciation, deduct ₹95 lakh eligible tax depreciation, add ₹15 lakh of a ₹20 lakh gratuity expense that is disallowed now and assumed deductible later (₹5 lakh qualifies now), ₹25 lakh qualifying supplier principal disallowed until payment, and ₹2 lakh of permanently non-deductible MSMED interest.

Calculation	Amount
Taxable income	₹5,07,00,000
Current tax at 25.168% before payment credits or statutory rounding of the final payable amount	₹1,27,60,176
DTL on ₹35 lakh depreciation difference	₹8,80,880
DTA on ₹15 lakh gratuity difference	₹3,77,520
DTA on ₹25 lakh late supplier payment	₹6,29,200
Combined DTA and net deferred tax credit	₹10,06,720 and ₹1,25,840 respectively
Total tax expense in the illustration	₹1,26,34,336

The movement entry debits DTA ₹10,06,720, credits DTL ₹8,80,880 and credits deferred tax ₹1,25,840. The tax expense ties to accounting profit plus the ₹2 lakh permanent difference at 25.168% under these assumptions.

2. Remeasure a DTL after a regime switch

Solaris Energy had a ₹62.40 lakh DTL on ₹2 crore of cumulative depreciation timing differences at an assumed previously applicable rate of 31.20%. It validly enters section 115BAA in FY 2023–24. Assuming the entire ₹2 crore still reverses at the new rate, with no change in tax base, the revised DTL is ₹50,33,600 and the reduction is ₹12,06,400. Where the original tax was recorded in profit and loss, debit the DTL and credit deferred tax income for that reduction. This isolates the rate effect from other changes during the year.

3. Assess a proposed DTA on carried-forward business loss

NeoPharma reports a ₹3 crore operating loss and separately substantiates an eligible ₹3 crore tax loss. At 25.168% the theoretical maximum asset is ₹75,50,400. A proposed launch in 2025 and projected ₹5 crore profit do not establish virtual certainty when approval is outstanding, there are no binding orders, and the company has repeatedly missed its budgets. Assume there are no suitable reversing taxable differences or other convincing evidence. Recognise no DTA on these facts under AS 22; retain the loss-expiry analysis and consider disclosures required by the applicable framework. Do not conflate book loss with tax loss.

Transition and closing checks

On first-time adoption, apply Ind AS 101 and Ind AS 12 to the opening Ind AS balance sheet. Adjustments from transactions before transition generally go to retained earnings or, where appropriate, another equity category, subject to relevant transition requirements. Reconcile opening balances, origins, reversals, rate changes and amounts charged outside profit or loss. Assess the underlying tax law and documentation before treating any accounting movement as a deduction or current cash flow.

Calculating Deferred Tax Assets and Liabilities under AS 22 and Ind AS 12

Start with the applicable accounting and tax rules

Classify adjustments by whether and when they reverse

Rate changes, loss recovery and MAT credit

Typical profit-and-loss journal entries

Three worked cases

1. Current and deferred tax on the manufacturing reconciliation

2. Remeasure a DTL after a regime switch

3. Assess a proposed DTA on carried-forward business loss

Transition and closing checks

Sources

Calculating Deferred Tax Assets and Liabilities under AS 22 and Ind AS 12

Start with the applicable accounting and tax rules

Classify adjustments by whether and when they reverse

Rate changes, loss recovery and MAT credit

Typical profit-and-loss journal entries

Three worked cases

1. Current and deferred tax on the manufacturing reconciliation

2. Remeasure a DTL after a regime switch

3. Assess a proposed DTA on carried-forward business loss

Transition and closing checks

Sources

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