Build a utilisation-capacity schedule before measuring the asset
A legally available tax loss does not automatically create a fully recognised deferred tax asset. Ind AS 12 paragraphs 34–36 connect recognition to probable eligible future taxable profit and the supporting evidence, with particular caution after recent losses. This guide, checked on 28 October 2026, develops a company workpaper for loss vintages, expiry and taxable-capacity allocation. It does not repeat a general tax-base/MAT-credit guide or prescribe a loss-return filing position. ICAI Ind AS 12: paragraphs 34–37, 47, 53, 56, 81(e) and 82.
Separate loss existence from accounting recoverability
Start with a legally supported loss register: taxable entity, authority, type, amount available, expiry, utilisation restrictions and actual prior usage. Resolve disputed tax amounts independently before treating them as certain inputs. Then build the accounting recognition analysis. A filed return, an assessed loss and a forecast serve different evidential purposes. The examples assume the legal availability, expiry and restriction inputs have been independently established; none asserts that every Indian tax loss has the same carry-forward period or set-off permission. ICAI Ind AS 12: paragraphs 34–37, 47, 53, 56, 81(e) and 82.
Match eligible capacity by period and source
Paragraph 36(a) addresses sufficient taxable temporary differences of the same authority and taxable entity producing eligible taxable amounts before expiry. Other probable taxable profits and feasible tax-planning opportunities require their own support. Build a period-by-period capacity schedule and identify what each number includes. Consolidated group profit is not automatically profit against which a particular entity's loss can be used. Similarly, a restricted loss needs the appropriate income source, not merely a positive total profit forecast. ICAI Ind AS 12: paragraphs 34–37, 47, 53, 56, 81(e) and 82.
Prevent duplicate capacity in the forecast
If forecast taxable profit already includes reversal of a taxable temporary difference, do not add that reversal a second time as another recovery source. Label the forecast before loss utilisation and reconcile operating forecasts, permanent adjustments, temporary-difference movements and legally usable income. A column heading such as EBITDA or profit before tax is insufficient. Use the applicable tax rules and evidence to convert it to eligible taxable capacity and document any competing deductions or losses consuming the same capacity. ICAI Ind AS 12: paragraphs 34–37, 47, 53, 56, 81(e) and 82.
Allocate the capacity to real loss vintages
Show opening losses, the periods in which each can be used, the allocated eligible profit, expiry and closing balance. The illustrations explicitly stipulate oldest-vintage-first allocation and no other competing claims; they do not invent a universal statutory sequencing rule. A later profit cannot rescue a loss already expired. Retain unused capacity separately, so the existence of ₹10 lakh extra capacity after a newer loss is used does not revive an older expired balance. Reconcile recognised and unrecognised tax-effect amounts to the same legal loss population. ICAI Ind AS 12: paragraphs 34–37, 47, 53, 56, 81(e) and 82.
Measure, reassess and disclose the supported amount
Paragraph 47 governs the applicable enacted or substantively enacted measurement rates; paragraph 53 prohibits discounting. Paragraphs 37 and 56 require reassessment of unrecognised and recognised assets, and paragraphs 81(e) and 82 contain relevant disclosures. Each numerical model uses an expressly illustrative 25% applicable measurement-rate assumption, not a claim that 25% is the all-in statutory rate of an Indian company. Real accounts require their own legally supported rate, evidence and tax-effect location; recognition is not a cash refund or authority approval. ICAI Ind AS 12: paragraphs 34–37, 47, 53, 56, 81(e) and 82.
Applicable primary references
ICAI Ind AS 12: paragraphs 34–37, 47, 53, 56, 81(e) and 82
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Recognise only supported capacity
Assume a company has legally available unused losses ₹100 lakh, eligible probable future taxable capacity ₹75 lakh before expiry and the stipulated illustrative measurement rate 25%. The supported loss-related DTA is ₹18.75 lakh. The remaining ₹25 lakh loss has an unrecognised tax effect of ₹6.25 lakh under these assumptions.
Illustrative example 2: An early vintage expires despite later spare capacity
Assume loss A ₹60 lakh expires after Year 1, loss B ₹40 lakh remains usable through Year 2, eligible capacity is ₹30 lakh in Year 1 and ₹50 lakh in Year 2, and supported oldest-first allocation applies. Use A ₹30 lakh; its other ₹30 lakh expires. Use B ₹40 lakh in Year 2, leaving ₹10 lakh capacity. Total usable loss is ₹70 lakh and DTA at the illustrative 25% is ₹17.50 lakh.
Illustrative example 3: Do not count a reversal twice
Assume unused loss ₹100 lakh and supported taxable forecast ₹60 lakh already including ₹40 lakh taxable temporary-difference reversals, all eligible before expiry. Total capacity remains ₹60 lakh, so DTA at the illustrative 25% is ₹15 lakh. Adding ₹40 lakh again would incorrectly produce ₹100 lakh capacity and ₹25 lakh DTA.
Illustrative example 4: Another group entity is not automatically capacity
Assume company A has unused losses ₹60 lakh and eligible capacity ₹20 lakh; company B has ₹80 lakh profit. With no legally available cross-entity loss relief and no other A capacity, only ₹20 lakh supports A's loss DTA, or ₹5 lakh at the illustrative 25%. B's ₹80 lakh does not fill A's gap merely because both are consolidated.
Illustrative example 5: Respect an independently established source restriction
Assume a company has ₹30 lakh losses whose legal use is restricted to the stipulated capital-gain category, eligible probable gains of that category ₹12 lakh and ordinary profit ₹50 lakh that cannot absorb them. DTA at the illustrative 25% is ₹3 lakh. The remaining ₹18 lakh loss has ₹4.50 lakh unrecognised tax effect; the ordinary profit does not remove the restriction.
Illustrative example 6: Reassess without changing the legal loss population
Assume unused losses stay ₹80 lakh with the same legal availability and illustrative 25% rate. Initially supported capacity ₹60 lakh gives DTA ₹15 lakh. Later capacity ₹45 lakh gives ₹11.25 lakh, a ₹3.75 lakh reduction. If subsequent evidence supports ₹70 lakh, the amount becomes ₹17.50 lakh, an increase of ₹6.25 lakh from ₹11.25 lakh. Determine the proper accounting location separately.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the relevant reporting and tax entities | Company, authority and accounting scope |
| 2 | Verify available legal losses | Returns/orders, prior utilisation and supported closing amounts |
| 3 | Classify types and restrictions | Eligible income sources and legally available relief |
| 4 | Map vintage expiry | Actual expiry dates and usable periods |
| 5 | Schedule taxable temporary-difference reversals | Entity, authority, period and eligible taxable amounts |
| 6 | Reconcile the taxable forecast | Before loss use, with reversals clearly identified |
| 7 | Assess evidence and remove overlap | Probability, recent-loss evidence and capacity counted once |
| 8 | Allocate capacity to available vintages | Supported sequencing, competing claims and expiry |
| 9 | Apply the supported measurement rate | Enacted/substantively enacted basis and no discounting |
| 10 | Review the recognition bridge and disclosures | Recognised/unrecognised amounts, reassessment and evidence |
Sixteen practitioner FAQs
1. Does a valid tax loss automatically justify a full DTA?
No. Establish the probable eligible taxable capacity and evidence required by Ind AS 12.
2. Is a loss register the same as a recoverability forecast?
No. One establishes legal availability; the other supports accounting recovery within the permitted periods and categories.
3. Why does recent loss history matter?
Paragraph 35 treats unused losses as strong evidence against future profit availability and requires the stated supporting basis.
4. Can taxable temporary-difference reversals support recognition?
Yes, subject to the same-entity, same-authority, eligibility and before-expiry requirements in the applicable analysis.
5. Can a reversal already included in the forecast be added again?
No. The capacity workpaper must count the same taxable amount only once.
6. Is EBITDA alone an eligible taxable-capacity figure?
No. Reconcile the operating forecast to the legally usable taxable amount and identify what deductions and reversals it contains.
7. Can another consolidated entity's profit always absorb the loss?
No. Establish actual legal cross-entity relief; consolidation alone does not provide it.
8. Can a restricted loss be supported by any income category?
No. Apply its independently established source restrictions to the capacity population.
9. Does a profit after expiry support the expired vintage?
No. A period-by-period schedule must respect the actual legal availability window.
10. Is oldest-vintage-first a universal rule imposed by these examples?
No. It is a stated model assumption; use legally supported sequencing in the real workpaper.
11. Does the illustrative 25% rate prescribe an Indian company rate?
No. It isolates the arithmetic; real measurement needs the company's applicable supported rates and tax law.
12. May the resulting DTA be discounted for its later use?
Paragraph 53 prohibits discounting deferred tax assets and liabilities.
13. Should unrecognised amounts be forgotten after the first assessment?
No. Paragraph 37 requires reassessment at the end of each reporting period.
14. Can a recognised amount stay unchanged after capacity deteriorates?
Paragraph 56 requires reduction where the stated recovery probability no longer supports it, and subsequent reversal when supported.
15. What disclosure issues need attention?
Check unrecognised amounts and expiry under paragraph 81(e), and the relevant recent-loss evidence disclosure under paragraph 82.
16. Does recognising the asset confirm a refund or tax-authority acceptance?
No. It is an accounting conclusion, separate from the actual return, assessment and cash-tax outcomes.
Conclusion
Test loss-related deferred tax assets against eligible taxable capacity before expiry, preserving source restrictions and avoiding duplicate use of the same forecast profit.