The movement's source determines its location
A deferred-tax balance can change when the related temporary difference is unchanged. Ind AS 12 paragraphs 60 and 61A require attention to whether the tax relates to items previously recognised in profit or loss, OCI or directly in equity. Checked on 28 October 2026, this guide builds that source-tracing workpaper. It is distinct from tax-base definitions, loss-DTA capacity and uncertainty measurement. ICAI Ind AS 12: paragraphs 47, 60–64 and related recognition provisions.
Establish the measurement rate before allocating
Paragraph 47 uses the rate expected for realisation or settlement based on law enacted or substantively enacted by the reporting date. Document the applicable jurisdiction, period and expected recovery or settlement. A proposed budget rate is not automatically usable. Every rate in the examples is an explicitly hypothetical applicable measurement assumption; none prescribes an Indian company's statutory rate, surcharge or cess. ICAI Ind AS 12: paragraphs 47, 60–64 and related recognition provisions.
Maintain source components within the tax register
For each recognised temporary difference record carrying amount, tax base, rate, opening tax balance and the originating accounting location. A single net DTL number can conceal OCI and profit-or-loss components. Preserve the history of revaluations, directly recognised equity transactions and later changes rather than reconstructing it from the current-year ledger alone. A rate change does not by itself change the tax base or the temporary-difference amount. ICAI Ind AS 12: paragraphs 47, 60–64 and related recognition provisions.
Remeasure and trace the resulting movement
Calculate the closing supported tax amount and compare it with the opening amount attributable to the unchanged difference. Under paragraph 60, the resulting deferred tax generally goes to profit or loss except to the extent related to items previously recognised outside it. Paragraph 61A addresses both same-period and different-period source items. The models stipulate clear traceability, no business-combination complications and no other movements. ICAI Ind AS 12: paragraphs 47, 60–64 and related recognition provisions.
Use the exceptional allocation rule only where warranted
Paragraph 63 addresses exceptional difficulty in determining tax related to outside-profit items, allowing reasonable pro rata allocation or another more appropriate method. It is not a blanket permission to distribute every tax movement by current profit percentages. Document why exact tracing is difficult, the tax jurisdiction concerned and the selected method. A readily identifiable OCI component should not be ignored merely because a net tax journal is easier to post. ICAI Ind AS 12: paragraphs 47, 60–64 and related recognition provisions.
Review recoverability and surplus transfers separately
A change in DTA recoverability also needs its source-location analysis under paragraphs 60–63. Paragraph 64 requires a transfer from revaluation surplus to retained earnings, if made, to be net of related deferred tax. Such an equity transfer is not automatically a current profit-or-loss tax credit. Reconcile opening balances, recognised movements and transfers without double-counting; maintain separate recognition and disclosure conclusions for real accounts. ICAI Ind AS 12: paragraphs 47, 60–64 and related recognition provisions.
Applicable primary references
ICAI Ind AS 12: paragraphs 47, 60–64 and related recognition provisions
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: OCI-origin liability, lower rate
Assume an unchanged taxable temporary difference ₹100 lakh arises entirely from an OCI revaluation. Applicable rate falls from 25% to 20%. DTL falls from ₹25 to ₹20 lakh; the clearly traced ₹5 lakh release is in OCI, not automatically profit or loss.
Illustrative example 2: Profit-origin liability
Assume unchanged profit-or-loss-origin taxable difference ₹60 lakh and applicable rate falls from 30% to 25%. DTL falls from ₹18 to ₹15 lakh. The ₹3 lakh release is in profit or loss under the stipulated tracing facts.
Illustrative example 3: Separate mixed sources
Assume taxable differences ₹40 lakh from OCI and ₹60 lakh from profit or loss, both unchanged, with rate 25% becoming 20%. Releases are ₹2 lakh in OCI and ₹3 lakh in profit or loss, total ₹5 lakh. A single ₹5 lakh profit credit would lose the source distinction.
Illustrative example 4: Direct-equity source
Assume an unchanged ₹20 lakh taxable difference is clearly traced to an item recognised directly in equity. Rate 30% becomes 25%, reducing DTL from ₹6 to ₹5 lakh. The ₹1 lakh release is recognised directly in equity under the stipulated facts.
Illustrative example 5: Recoverability changes for an OCI-origin asset
Assume an OCI-origin deductible difference of ₹80 lakh initially supports DTA ₹20 lakh at 25%. Later only ₹50 lakh of that same difference supports recognition, with source wholly traceable to OCI and no other movements. DTA becomes ₹12.50 lakh, a ₹7.50 lakh reduction recognised in OCI on these assumptions.
Illustrative example 6: Net transfer of revaluation surplus
Assume a company makes an otherwise valid transfer corresponding to gross excess depreciation ₹12 lakh, with related deferred-tax amount ₹3 lakh. The paragraph 64 transfer from revaluation surplus to retained earnings is ₹9 lakh net. Do not post an additional ₹3 lakh profit credit merely because the equity transfer is net of tax.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify reporting and tax scope | Entity, jurisdiction and recognised balances |
| 2 | Verify applicable rate law | Enacted/substantively enacted status at reporting date |
| 3 | Confirm recovery or settlement assumptions | Relevant period and supported measurement basis |
| 4 | Reconcile temporary differences | Carrying amounts, tax bases and unchanged/changed components |
| 5 | Trace original accounting locations | Profit, OCI, direct equity and separate acquisition effects |
| 6 | Recalculate closing balances | Supported rate and recognition criteria |
| 7 | Allocate each movement to its source | Same/different-period tracing under paragraphs 60–61A |
| 8 | Assess exceptional allocation only if needed | Reason for difficulty and appropriate paragraph 63 method |
| 9 | Check recoverability and surplus transfers | Independent recognition and net-of-tax transfer schedule |
| 10 | Reconcile postings and disclosures | Opening plus movements equals closing, without duplicate tax effects |
Sixteen practitioner FAQs
1. Does a tax-rate change always affect profit or loss?
No. Trace the related source item under paragraphs 60 and 61A.
2. Can DTL change without changing the temporary difference?
Yes. A different applicable measurement rate can change the tax amount.
3. Can an announced proposal be used automatically?
No. Establish enacted or substantively enacted status and the applicable requirements.
4. Do the examples prescribe Indian company rates?
No. They use explicitly hypothetical applicable measurement assumptions.
5. What if the related item was recognised in OCI earlier?
The different-period wording matters; current-year remeasurement can still relate to that OCI source.
6. What if the source was directly in equity?
Keep that location distinct from both OCI and profit or loss.
7. Can a net DTL figure hide multiple sources?
Yes. Retain component-level origin and movement records.
8. Does a rate change automatically change the tax base?
No. Identify any separate tax-law base change independently.
9. Can all movements be allocated by current-year profit percentages?
No. Paragraph 63 addresses exceptional difficulty, not a general convenience election.
10. What supports an exceptional allocation?
Evidence of the tracing difficulty and a reasonable pro rata or more appropriate method in the relevant circumstances.
11. Does DTA recoverability require a source review too?
Yes. Paragraphs 60–63 address relevant changes beyond rate remeasurement.
12. Is a DTA reduction always a profit expense?
No. Determine the portion related to an outside-profit source.
13. Is transferring revaluation surplus mandatory under this guide?
No. The example assumes an otherwise valid transfer is made.
14. How is such a transfer measured under paragraph 64?
Net of the related deferred tax.
15. Does that net equity transfer itself create another tax credit?
No. Avoid counting the tax effect again solely because the transfer is net.
16. What should the register reconcile?
Opening balance, source-specific recognised movements, any valid transfers and closing balance.
Conclusion
Remeasure using the applicable enacted or substantively enacted rates, then trace the movement to the source item rather than sending every change to profit or loss.