Measure the obligation before reconciling payments
Ind AS 12 paragraph 46 measures current-tax liabilities and assets for current and prior periods at the amount expected to be paid to or recovered from tax authorities, using rates and laws enacted or substantively enacted by the reporting date. Paragraph 12 recognises unpaid current tax as a liability and excess tax paid as an asset. A bank payment is not the measure of annual tax expense.
Read the applicable text: ICAI: Ind AS 12, paragraphs 12 and 46–48 and Appendix C.
Document reporting-date legal status
Retain the relevant law, jurisdiction, effective period, enactment status and applicable taxpayer conditions. Paragraph 48 recognises that in some jurisdictions an announcement can have the substantive effect of enactment. Do not assume every budget speech, proposed rate or press release has that effect. Obtain jurisdiction-specific support; the accounting phrase is not permission to anticipate any politically likely change.
Separate current tax from deferred-tax measurement
Current tax concerns the expected payment or recovery for current and prior periods. Deferred tax uses its own requirements, including expected reversal-period rates under paragraph 47. A future-rate assumption used in a temporary-difference schedule should not silently replace the law applicable to the current-tax obligation. Keep taxable profit reconciliation, current tax and temporary differences in separate but linked workings.
Track prior-period balances and settlement
Reconcile opening current-tax liabilities or assets, supported changes in estimates, actual payments or recoveries and closing positions by entity, jurisdiction and period. The examples use fictional already-verified tax bases and simple effective rates solely to explain accounting arithmetic. They do not prescribe an Indian corporate tax rate, surcharge, cess, marginal relief or any foreign country’s law.
Do not net unrelated balances casually
Measure the underlying balances first. Presentation and offsetting require their own conditions under Ind AS 12; common group ownership or a single spreadsheet is not sufficient. Tax expense allocation between profit or loss, OCI and equity also has separate requirements. A current-tax working should retain those classifications rather than forcing every adjustment through the same expense account.
Resolve uncertainty with the applicable framework
Expected settlement is not necessarily the amount in a draft return. Uncertain income-tax treatments require separate consideration under Appendix C to Ind AS 12. Record the issue and supported measurement rather than hiding it in an unexplained rate adjustment. This article covers current-tax measurement controls, distinct from carryback recognition, deferred-tax rate remeasurement, offsetting and the tax-expense rate reconciliation.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Obligation exceeds payments
Assume verified taxable profit ₹40 lakh at an applicable simple effective 25% rate, with no other adjustments. Current tax is ₹10 lakh. Payments allocated to the same liability are ₹7 lakh, leaving ₹3 lakh payable, subject to the applicable presentation requirements.
Illustrative example 2: Excess paid
On verified current tax ₹6 lakh and eligible allocated payments ₹8 lakh, the excess is ₹2 lakh. Paragraph 12 supports recognition of the excess as an asset; this arithmetic does not establish legal entitlement to every claimed payment credit.
Illustrative example 3: An unqualified proposal is excluded
Assume applicable reporting-date enacted rate 25%, proposed rate 22% not substantively enacted, and taxable base ₹20 lakh. Current tax remains ₹5 lakh on these facts; the unsupported proposed-rate figure ₹4.40 lakh would understate it by ₹60,000.
Illustrative example 4: Supported prior-period update
An opening prior-period current-tax liability ₹4 lakh is reassessed on supported facts at ₹4.50 lakh before a ₹3 lakh payment allocated against it. The closing liability is ₹1.50 lakh. Determine the correct accounting classification of the ₹50,000 change separately.
Illustrative example 5: Separate entities
Entity A has current-tax liability ₹9 lakh and allocated payments ₹5 lakh, leaving ₹4 lakh payable. Entity B has tax ₹3 lakh and payments ₹4 lakh, leaving ₹1 lakh recoverable. Do not automatically present a single ₹3 lakh group liability without satisfying offset conditions.
Illustrative example 6: Expense is not the payment
Verified current tax for the period is ₹12 lakh. Cash tax payments total ₹15 lakh, comprising ₹10 lakh for this period and ₹5 lakh settling prior-period tax. Current-period unpaid amount is ₹2 lakh. The ₹15 lakh cash total is not automatically this period’s tax expense.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm Ind AS scope | Reporting entity and applicable framework. |
| 2 | Fix the reporting date | Period-end and jurisdiction. |
| 3 | Establish taxable bases | Current and prior-period computations. |
| 4 | Verify applicable law | Enacted or substantively enacted status. |
| 5 | Check taxpayer-specific conditions | No unsupported regime or rate assumption. |
| 6 | Measure expected settlement | Paragraph 46 and uncertainty review. |
| 7 | Allocate payments and credits | Entity, period and authority reconciliation. |
| 8 | Separate deferred-tax workings | Temporary differences and reversal assumptions. |
| 9 | Review presentation and allocation | Offsetting and profit/OCI/equity requirements. |
| 10 | Approve the closing bridge | Opening, changes, settlements and closing balances. |
Sixteen practitioner FAQs
1. Which paragraph measures current tax?
Paragraph 46 of Ind AS 12.
2. What does paragraph 12 recognise?
Unpaid tax liabilities and assets for excess payments over tax due.
3. Does the amount paid equal current-tax expense?
Not necessarily. Payments and expense are different measures.
4. Can a proposed rate always be used?
No. Establish enactment or substantive enactment by reporting date.
5. Does every government announcement qualify?
No. Paragraph 48 requires the relevant jurisdictional effect.
6. Are the examples actual Indian company rates?
No. They use fictional verified simple effective rates for accounting arithmetic.
7. Does paragraph 46 also cover prior periods?
Yes. It refers to current and prior periods.
8. Can a future deferred-tax rate be copied into current tax?
Not without establishing its applicability to the current-tax obligation.
9. What is needed for a payment credit?
Support for the entity, period, authority and actual entitlement.
10. Does overpayment automatically become deferred tax?
No. Excess current tax paid is a current-tax asset under paragraph 12.
11. Can group entities net balances automatically?
No. Review the separate offset requirements.
12. Must every tax change go through profit or loss?
No. Apply the relevant recognition and allocation requirements.
13. Does a draft return conclusively measure settlement?
Not necessarily. Consider actual facts and uncertain treatments.
14. Where are uncertain income-tax treatments addressed?
Appendix C to Ind AS 12 requires separate consideration.
15. Why separate prior-period cash settlements?
They can distort the apparent current-period expense if mixed together.
16. What should the final working explain?
Opening balances, supported changes, allocated payments and closing expected settlement.