Identify the investment-level difference
Ind AS 12 paragraphs 38–45 address temporary differences associated with investments in subsidiaries, branches, associates and interests in joint arrangements. Often called outside-basis differences, these need their own computation distinct from temporary differences in the investee’s individual assets and liabilities. Establish the investor, reporting perspective, relevant carrying amount and tax base. Undistributed profits, exchange movements or impairment may contribute. Separate and consolidated financial statements need not produce the same investment-related difference. Checked on 5 November 2026 against the published standard.
Ind AS 12: paragraphs 38–45, 47, 51 and 56
Support both liability-exception conditions
Paragraph 39 generally requires a liability for taxable investment differences. Its exception needs both control over reversal timing and probable non-reversal in the foreseeable future, and applies only to the extent those conditions hold. A shareholding percentage is not a complete memo. Connect contractual rights, dividend policy, disposal plans and approved forecasts to the specific portion being excluded. If a distribution or sale is planned, evaluate its actual reversal consequences instead of relying on a generic intention to retain the investment.
Ind AS 12: paragraphs 38–45, 47, 51 and 56
Distinguish subsidiary control from associate influence
Paragraph 40 discusses the parent’s control of subsidiary dividend policy and similar branch considerations. Paragraph 42 explains why associate investors usually cannot determine dividend policy; an appropriate non-distribution agreement and its effect must be examined. For joint arrangements, paragraph 43 directs attention to profit-distribution terms and consent requirements. Board participation or significant influence should not casually be equated with control of reversal timing. Keep the actual governing documents with the conclusion.
Ind AS 12: paragraphs 38–45, 47, 51 and 56
An asset needs reversal as well as usable profit
Paragraph 44 requires probable reversal of a deductible investment difference in the foreseeable future and probable taxable profit against which it can be utilised. Paragraph 45 refers to the profit-support guidance in paragraphs 28–31. An accounting impairment does not prove tax deductibility. Confirm deduction conditions, relevant taxpayer, jurisdiction, restrictions and usable periods. Do not reuse the same forecast profit to support several assets without a combined capacity reconciliation. Partial support requires a partial asset, not an all-or-nothing shortcut.
Ind AS 12: paragraphs 38–45, 47, 51 and 56
Measure the expected recovery route
Paragraphs 47 and 51 require appropriate enacted or substantively enacted rates and the tax consequences of the expected manner of recovery. Dividends and disposals can have different effects. Do not apply a generic corporate tax percentage to every investment difference. All six illustrations assume fictional applicable tax rates and supported tax bases solely to isolate recognition; none claims that an Indian dividend, overseas remittance or capital gain necessarily bears that rate. Pillar Two deferred taxes are outside these illustrations and have the standard’s separate exception.
Ind AS 12: paragraphs 38–45, 47, 51 and 56
Keep the close memo reproducible
Record investment identity, carrying amount, tax base, taxable/deductible difference, expected recovery, control evidence, reversal plan, rate and recognised/unrecognised amount. Reassess when distributions, disposals or profit forecasts change; paragraph 56 also requires review of asset recoverability. Presentation follows the relevant underlying transaction requirements. Group membership does not by itself permit offsetting balances across entities. Preserve gross computations and assess offset conditions separately so a net ledger posting does not conceal unsupported recognition.
Ind AS 12: paragraphs 38–45, 47, 51 and 56
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Entire subsidiary difference qualifies for exception
Assumed carrying amount ₹14 million less tax base ₹10 million gives taxable difference ₹4 million. Fictional applicable rate 25% would give ₹1 million before the exception. Assume reversal timing is controlled and non-reversal in the foreseeable future is probable for the whole difference. Recognised DTL is zero under paragraph 39.
Illustrative example 2: Only part is protected
Taxable difference ₹4 million includes ₹1.20 million expected to reverse and ₹2.80 million meeting both exception conditions. At fictional 25%, DTL is ₹0.30 million on the reversing portion. Subsidiary ownership does not exempt the entire difference.
Illustrative example 3: Associate without distribution control
Carrying amount ₹9 million less tax base ₹6 million gives ₹3 million taxable difference. Assume no control of reversal timing and no qualifying non-distribution agreement. At fictional applicable 20%, recognise DTL ₹0.60 million; the investor’s preference to retain earnings is insufficient.
Illustrative example 4: Joint arrangement with an approved distribution
Difference ₹2.50 million includes ₹1 million to reverse through an approved distribution; assume the other ₹1.50 million meets both exception conditions. At fictional 30%, recognise DTL ₹0.30 million. Evaluate rights alongside the approved plan.
Illustrative example 5: Limited usable profit
Assume a deductible investment difference ₹2 million will reverse foreseeably but only ₹1.20 million can be used against probable qualifying profit under the stipulated tax law. At fictional 25%, DTA is ₹0.30 million. The remaining ₹0.80 million difference represents unrecognised potential benefit ₹0.20 million.
Illustrative example 6: Profit alone is insufficient
Deductible difference ₹1.50 million at fictional 20% represents potential benefit ₹0.30 million. Assume sufficient qualifying profit, but foreseeable reversal is not probable. Recognised DTA is zero because paragraph 44’s other condition fails.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Define reporting perspective | Identify investor and separate or consolidated statements. |
| 2 | Classify the investment | Record subsidiary, branch, associate or joint arrangement. |
| 3 | Support carrying amount | Tie the figure to the reporting records. |
| 4 | Establish tax base | Retain applicable tax-law and transaction support. |
| 5 | Compute the difference | Separate taxable and deductible movements. |
| 6 | Assess reversal control | Examine distribution policy and contractual consent rights. |
| 7 | Evidence foreseeable plans | Retain approved retention, distribution or disposal analysis. |
| 8 | Test usable taxable profit | Map deductions to qualifying profit without double counting. |
| 9 | Measure tax consequences | Support expected recovery route and enacted/substantively enacted rate. |
| 10 | Review recognition and presentation | Document partial exceptions, recoverability and separate offset conclusions. |
Sixteen practitioner FAQs
1. Which paragraphs govern investment differences?
Ind AS 12 paragraphs 38–45.
2. What does outside basis mean here?
The investment-related carrying-amount/tax-base difference, distinguished from investee asset-level differences.
3. Can retained profits contribute?
Yes. Paragraph 38 identifies undistributed profits as a possible source.
4. Are separate and consolidated differences identical?
Not necessarily; the reporting perspective matters.
5. Does every subsidiary avoid a DTL?
No. Both paragraph 39 exception conditions need support.
6. What are those two conditions?
Control of reversal timing and probable non-reversal in the foreseeable future.
7. Does share ownership alone establish non-reversal?
No. Examine actual distribution and disposal plans.
8. Does associate influence establish dividend control?
Usually not; examine the relevant agreement and paragraph 42 facts.
9. What matters in joint arrangements?
Distribution terms, consent rights and foreseeable plans.
10. Does impairment automatically create an asset?
No. Establish tax deductibility and both paragraph 44 conditions.
11. Is probable profit sufficient?
No. Probable foreseeable reversal is also required.
12. Can only part of a difference support a DTA?
Yes. Recognition is limited to the supported portion.
13. Are the illustration rates Indian statutory rates?
No. They are expressly fictional assumptions.
14. Can recovery through sale differ from dividends?
Yes. Measurement must reflect the supported expected recovery consequences.
15. Is the assessment permanent?
No. Revisit changed plans and profit evidence.
16. May group balances automatically be offset?
No. Offset conditions require a separate assessment.