Apply the deferred-tax test before net presentation
Ind AS 12 paragraph 74 requires offsetting deferred tax assets and liabilities if and only if all its conditions are satisfied. There must be a legally enforceable right to set off current tax assets against current tax liabilities. The deferred balances must also concern income taxes levied by the same taxation authority on either the same taxable entity or qualifying different taxable entities. A shared parent, currency or tax adviser does not establish those conditions.
Read the applicable text: ICAI: Ind AS 12, paragraphs 74–76 ICAI: 2025–26 Ind AS compendium, Volume II.
Recognise and measure before deciding presentation
This article addresses presentation of already assessed deferred tax balances. Keep the gross temporary-difference, loss and credit schedules and perform the applicable recognition and measurement assessment before offsetting. A net liability does not cure an unsupported deferred tax asset. Equally, a failure of offset conditions does not itself mean that an otherwise valid asset must be derecognised; it affects the presentation decision considered here.
The legal right concerns current tax
Paragraph 74(a) expressly asks for a legally enforceable right to set off current tax assets against current tax liabilities. Do not substitute an intention to net deferred balances, an internal consolidation journal or a general right of recovery against the tax authority. Obtain a documented analysis of the actual tax law and taxpayer circumstances supporting the right. The deferred-tax conclusion then also needs the separate conditions in paragraph 74(b).
Same taxable entity and same taxation authority
For the same taxable entity, paragraph 75 explains the same-authority and current-tax legal-right basis for offsetting without detailed scheduling of each temporary difference’s reversal. All those conditions matter. Merely being the same legal company cannot establish a right to offset deferred tax relating to different taxation authorities. Document the actual taxable entity and authority rather than assuming the reporting entity and taxpayer are always identical concepts.
Different taxable entities need the future-period condition
Paragraph 74(b)(ii) covers different taxable entities only with the specified intention to settle current tax assets and liabilities net, or realise assets and settle liabilities simultaneously, in each future period in which significant deferred tax amounts are expected to be recovered or settled. The current-tax enforceable-right test and same-authority test still apply. Group membership alone does not qualify, and a plan for only the current period is not an adequate substitute for the stated future-period condition.
When scheduling becomes necessary
Paragraph 76 describes rare circumstances where enforceable set-off rights and net-settlement intentions exist for some periods but not others. Detailed scheduling may then be needed to assess reliably the coincidence of increased tax payments from one entity’s deferred liability and decreased payments from another’s deferred asset. Prepare that analysis from supportable reversal and settlement evidence, rather than assuming every future period will resemble the current one.
Build separate permitted offset pools
For preparation, organise gross balances by taxable entity, taxation authority and the legal-right and settlement evidence. An internal pool identifier is only a working-paper aid; it creates no legal right. Preserve pools that do not qualify separately and reconcile gross and permitted net amounts to the financial statements. Avoid combining a net asset under one authority with a net liability under another just to produce one group-wide tax figure.
Read the examples within their assumptions
Amounts below are already recognised and measured deferred tax in ₹ lakh; no statutory tax rate is being inferred. The different-entity qualifying example assumes a fictional jurisdiction where the required enforceable current-tax set-off right and all paragraph 74 conditions genuinely exist. It does not assert that Indian group companies ordinarily have that right. Retain the supporting jurisdiction-specific analysis and revisit it when facts or tax law change.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Same entity, all conditions satisfied
An entity has DTA ₹20 lakh and DTL ₹15 lakh relating to the same taxation authority, with the required enforceable current-tax set-off right. Assuming all paragraph 74 conditions, net presentation is a deferred tax asset of ₹20 − ₹15 = ₹5 lakh. Gross supporting schedules remain ₹20 lakh and ₹15 lakh.
Illustrative example 2: Same numbers, no enforceable right
DTA is ₹20 lakh and DTL ₹15 lakh, but the required legal right has not been established and is assumed absent. Present the recognised asset ₹20 lakh and liability ₹15 lakh separately. Although arithmetic difference is ₹5 lakh, that subtraction does not establish permission to offset.
Illustrative example 3: One company, two authorities
A company has DTA ₹12 lakh under authority A and DTL ₹9 lakh under authority B. The same-authority requirement fails for that pair. Keep ₹12 lakh asset and ₹9 lakh liability separate, rather than displaying only a ₹3 lakh asset from cross-authority subtraction.
Illustrative example 4: Different group entities without qualifying conditions
Entity A has DTA ₹8 lakh and entity B DTL ₹8 lakh. They share a parent, but the necessary enforceable right and future settlement conditions are absent. Separate recognised amounts are ₹8 lakh asset and ₹8 lakh liability. Their numerical difference of zero is not an authorised group offset.
Illustrative example 5: Different entities with every condition established
In the fictional qualifying jurisdiction described above, different taxable entities have DTA ₹18 lakh and DTL ₹25 lakh under the same taxation authority. The legal right and required future-period net or simultaneous current-tax settlement intention are established. Required net presentation is a DTL of ₹25 − ₹18 = ₹7 lakh. Remove any of those necessary conditions and this illustration’s conclusion cannot simply be reused.
Illustrative example 6: Two separately qualifying authority pools
Authority X balances qualify for offset: DTA ₹14 lakh less DTL ₹10 lakh gives net asset ₹4 lakh. Authority Y balances separately qualify: DTL ₹7 lakh less DTA ₹2 lakh gives net liability ₹5 lakh. Gross assets are ₹16 lakh and liabilities ₹17 lakh, but present the ₹4 lakh asset and ₹5 lakh liability separately where cross-authority offset is unavailable, rather than one ₹1 lakh liability.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Validate underlying recognition | Approved gross DTA/DTL recognition and measurement schedules. |
| 2 | Identify taxable entities | Taxpayer identity and reporting-entity reconciliation. |
| 3 | Identify taxation authorities | Authority and tax-jurisdiction mapping for each balance. |
| 4 | Establish the current-tax legal right | Applicable law and enforceability analysis. |
| 5 | Separate same-entity from different-entity cases | Paragraph 74(b)(i)/(ii) classification. |
| 6 | Test different-entity settlement intentions | Evidence covering each relevant significant future period. |
| 7 | Identify period-specific exceptions | Paragraph 76 assessment and required detailed scheduling. |
| 8 | Define permitted presentation pools | Pool membership with every condition documented. |
| 9 | Reconcile gross and net amounts | Source schedules, permitted offsets and statement totals. |
| 10 | Refresh evidence at reporting date | Changed tax law, entity structure, rights and settlement plans. |
Sixteen practitioner FAQs
1. Which paragraph governs deferred-tax offsetting?
Ind AS 12 paragraph 74, read with paragraphs 75 and 76 for the issues discussed here.
2. Is the legal-right test about deferred taxes directly?
Paragraph 74(a) refers to the right to set off current tax assets against current tax liabilities.
3. Is the same taxation authority enough?
No. The legal-right condition and the relevant taxable-entity conditions must also be satisfied.
4. Is one legal company automatically one offset pool?
No. Authority and legal-right facts still need analysis.
5. Does consolidation create a set-off right?
No. Consolidation entries cannot create an enforceable right under tax law.
6. Can a DTA be left untested because the group has a larger DTL?
No. Underlying recognition and measurement must be assessed before presentation.
7. Does a failed offset test automatically derecognise the DTA?
No. Recognition and offsetting are distinct assessments.
8. Must same-entity reversals always be scheduled one by one for offsetting?
Paragraph 75 explains the qualifying same-entity, same-authority and legal-right basis intended to avoid that detailed scheduling.
9. What extra issue arises for different taxable entities?
The specified net or simultaneous current-tax settlement intention must cover each relevant future period with significant deferred amounts.
10. Is current-year net-settlement intention enough for different entities?
It does not by itself demonstrate the required intention across the relevant future periods.
11. When does paragraph 76 become relevant?
It describes rare cases with rights and net-settlement intentions for some periods but not others, where detailed scheduling may be needed.
12. Does matching currency authorise offsetting?
No. Currency is not a substitute for paragraph 74’s conditions.
13. Can separate tax authorities be combined at group level?
Not merely to produce an aggregate net figure when the same-authority condition fails.
14. Are the example balances tax-rate calculations?
No. They are assumed already recognised and measured amounts used to illustrate presentation.
15. Does the qualifying different-entity example assert an Indian group right?
No. It assumes a fictional jurisdiction with all required rights and conditions independently established.
16. What should be preserved after net presentation?
Gross source schedules, recognition conclusions, legal-right evidence, settlement analysis where relevant and a transparent gross-to-net reconciliation.
Official sources
ICAI: Ind AS 12, paragraphs 74–76 ICAI: 2025–26 Ind AS compendium, Volume II