A nil net amount does not establish an exemption
Ind AS 12 paragraph 22A explains that a single transaction, such as lease commencement, can create an asset and liability without initially affecting accounting or taxable profit. Depending on tax law, equal taxable and deductible temporary differences may arise. The initial-recognition exemptions in paragraphs 15 and 24 do not apply to those equal differences; recognise the resulting deferred-tax effects under the Standard’s conditions.
Read the applicable text: ICAI Ind AS 12: paragraphs 15, 22A, 24, 47, 74 and 98J ICAI 2025–26 compendium, Volume II.
Establish tax bases before calculating
Obtain the right-of-use asset and lease-liability measurements and determine their tax bases from applicable tax law. Do not assume every lease in every jurisdiction has nil tax bases or identical tax treatment. The examples explicitly assume nil tax bases and equal initial differences where stated, with no other components or exceptions.
Assess the asset and liability separately
A taxable difference associated with the asset and a deductible difference associated with the liability need their own schedules. Deferred-tax-asset recognition still requires the relevant paragraph 24 support. A statement that the two calculated tax effects cancel does not replace that recognition analysis. Identify supported utilisation rather than booking an asset solely to match a liability.
Use the appropriate rate and reversal evidence
Paragraph 47 requires the expected applicable rate based on enacted or substantively enacted law at reporting date. The examples assume a hypothetical 26% rate as a calculation input, not a statutory rate for every company. Track depreciation, interest, payments and other actual lease movements through their effect on the carrying amounts and tax bases.
Do not assume equality continues after commencement
Asset and liability carrying amounts may subsequently move differently, producing unequal temporary differences. Reconcile opening effects, reversals and closing balances rather than carrying forward an initial nil net conclusion. Review the remaining deferred-tax asset’s recognition support at reporting date.
Keep presentation offset separate
Paragraph 74 imposes conditions for offsetting deferred-tax assets and liabilities. Gross recognition and net presentation are separate inquiries. Do not net unrelated entities or authorities simply because the arithmetic cancels. Paragraph 98J identifies the single-transaction amendments’ application for annual periods beginning on or after 1 April 2023; this is part of the existing framework, not a newly proposed 2026 exemption.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Equal commencement differences
Assume right-of-use asset ₹100 lakh and lease liability ₹100 lakh, each with nil tax base, creating equal taxable and deductible differences. At assumed 26%, calculated DTL and DTA are each ₹26 lakh. With recognition conditions met, their difference is nil; that does not mean paragraph 22A permits omitting the recognition analysis.
Illustrative example 2: Later balances diverge
The same simplified lease later has asset ₹80 lakh and liability ₹85 lakh with nil tax bases. DTL is ₹20.8 lakh and recognised DTA ₹22.1 lakh if supported, giving an arithmetic net asset ₹1.3 lakh. Actual net presentation still needs paragraph 74 conditions.
Illustrative example 3: Reconcile the movement
Using opening DTL and DTA ₹26 lakh each and the preceding closing balances, DTL reverses ₹5.2 lakh and DTA reverses ₹3.9 lakh. The net change is a ₹1.3 lakh tax benefit on the assumed profit-or-loss facts, subject to proper recognition and allocation.
Illustrative example 4: Do not force unsupported asset recognition
Equal initial differences ₹50 lakh give calculated DTL and DTA ₹13 lakh each. Assume a completed utilisation analysis, including the taxable difference reversals, supports DTA on only ₹30 lakh because established timing or tax restrictions prevent further matching and no other supporting sources exist. Recognised DTA is ₹7.8 lakh and the unrecognised effect ₹5.2 lakh; do not automatically book ₹13 lakh to match the DTL. The stated support assumption must be justified under the Standard.
Illustrative example 5: Keep different entity balances separate
Company A has supported DTA ₹8 lakh and company B DTL ₹8 lakh. Their arithmetic sum is zero, but group membership alone does not establish the legal and tax-authority conditions for offset. Preserve both ₹8 lakh balances while testing the actual paragraph 74 requirements.
Illustrative example 6: Correct a carrying-amount input
A draft nil-tax-base lease-liability working uses ₹70 lakh; the supported measurement is ₹68 lakh. At unchanged assumed rate, calculated DTA changes from ₹18.2 lakh to ₹17.68 lakh, a ₹0.52 lakh reduction before the recognition review. Do not leave the tax schedule disconnected from the corrected lease measurement.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the single transaction | Lease commencement and relevant components. |
| 2 | Verify the accounting measurements | Asset and liability schedules. |
| 3 | Establish tax bases | Applicable tax-law analysis. |
| 4 | Calculate both temporary differences | Separate asset and liability workings. |
| 5 | Test the equal-initial-difference rule | Paragraphs 15, 24 and 22A. |
| 6 | Assess DTA recognition support | Utilisation and relevant profit evidence. |
| 7 | Verify the applicable rate | Paragraph 47 analysis. |
| 8 | Track subsequent movements | Reversals and corrected lease inputs. |
| 9 | Test offset separately | Paragraph 74 entity and authority conditions. |
| 10 | Close gross and presented balances | Recognition, movement and disclosure reconciliation. |
Sixteen practitioner FAQs
1. Which paragraph addresses this single-transaction issue?
Ind AS 12 paragraph 22A.
2. Does no initial accounting profit mean automatic exemption?
Not where the stated equal-difference rule applies.
3. Are all lease tax bases nil?
No. The examples expressly assume that fact.
4. Must the tax bases come from the accounting lease schedule alone?
Establish them under applicable tax law.
5. Can equal gross effects have a nil arithmetic net?
Yes, without eliminating the recognition inquiry.
6. Is DTA recognition automatic to match DTL?
No. Apply the relevant recognition conditions.
7. Can existing taxable differences support utilisation?
Include all applicable support in the required analysis; do not ignore relevant sources.
8. Do later lease balances necessarily remain equal?
No. Track actual asset and liability movements.
9. Is 26% prescribed for every lease here?
No. It is a hypothetical measurement input, not a verified entity-specific rate.
10. Which paragraph governs expected applicable rates?
Paragraph 47.
11. Does a corrected liability measurement affect the tax working?
Recompute the linked difference and recognised amount.
12. Is gross recognition identical to offset presentation?
They are separate requirements.
13. Does group membership alone permit offset?
No. Test paragraph 74’s conditions.
14. When did the stated amendments become applicable?
Annual reporting periods beginning on or after 1 April 2023, under paragraph 98J’s framework.
15. Are the examples complete lease-accounting computations?
No. They isolate assumed temporary-difference and tax effects.
16. What closes the file?
Accounting balances, tax bases, recognition support, movements and presentation agree.
Official sources
ICAI Ind AS 12: paragraphs 15, 22A, 24, 47, 74 and 98J ICAI 2025–26 compendium, Volume II