Defered tax

This query is : Resolved

Dulal Chatterjee (Querist)
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24 August 2011 Dear Experts,

I am confused regarding the treatment of Defrd. tax as per AS 22.

Please suggest as per the following informations:

If Op. Bal. of DTL Rs. 183580/- and Depreciation as per books Rs. 20,38,949/- & as per I.T. Act. Rs. 19,26,336/- then what amt. will be the closing balance under DTL or DTA and what amt will be transferred to PL (Dr. or Cr.)?

Thanks in advance.

Dulal Chatterjee

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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25 August 2011 Timing difference is Rs. 1,12,613/-
DTA is @ 30.90% Rs.34,797/-

Pass entry as follows:-
DTA Dr Rs.34797/- (consider in B/S)
To Deferred tax Rs. 34,797/- (credit in p & l a/c)

Square up with op balance & net amount Rs. 1,48,783/- may be shown in balance sheet as DTL.

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CA Ankit Verma

CA Ankit Verma (Expert)
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25 August 2011 In case of depreciation due to depreciation rate & calculation difference for depreciation calculation as per Income Tax & as per Companies Act asme issue will arise.

Such timing difference will get settled in later years for which we create DTA/DTL.

DTA arises when Profit as per books of A/c is less than profit under head PGBP as per Income Tax due to such transactions.

While

DTL arises when Profit as per books of A/c is more than profit under head PGBP as per Income Tax due to such transactions.

In this case depreciation as per IT act is less than depreciation as per Companies Act, hence the profit as per IT act shall be more under PGBP head as compared to Profit as per books by Rs. 1,12,613/- [2038949-1926336]

Now always remember one thing that rate of depreciation as per IT act are higher than rate of depreciation as per companies Act hence, you will never have DTA on depreciation.

So in case even though the profit as per companies act is less than PGBP as per IT act we shall not provide for DTA because depreciation as per IT act is less than dep as per companies act, it simply means it is reversal of DTL earlier provided for dep.

Hence applying the Deferred Tax rate of AY 2011-12, DTL shall be reversed by Rs. 37,407/- on this difference amount i.e.
[112613 x 33.2175%]

DTL A/c Dr.----------- 37407
To P&L A/c Cr.------------ 37407

The net DTL to be shown in Balance sheet shall be Rs. 1,46,173/- i.e.
[183580-37407]

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CA Ankit Verma

CA Ankit Verma (Expert)
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25 August 2011 The rate of tax for calculating deferred rate of tax liability for the year ending 31st March, 2011 for domestic co. is 33.2175%

i.e.

30% + [(2% + 1%) of 30] = 30.9%

Now,
Add Surcharge@7.5%

i.e. 30.9% + 7.5% of 30.9 = 33.2175%

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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25 August 2011 Surcharge @ 7.5% is applicable if and only if the taxable income of a domestic company exceeds rupees one crore in the assessment year 2011-12.

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CA Ankit Verma

CA Ankit Verma (Expert)
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25 August 2011 Agreed with warrior sir but since the depreciation amount is about 20 lakhs I have assumed that profit of company is more than Rs. 1 crore & hence deferred tax applicable to the referred company shall be 33.2175%.

Otherwise it shall be 30.9% only without surcharge..

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C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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26 August 2011 I agree with the experts

CA Deepak S

CA Deepak S (Expert)
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29 August 2011 Deferred Tax is calculated using last known tax rates and in my opinion surcharge is to be taken at 5% whuch is applicable for the AY 2012-13 because the future tax is going to reverse at this rate.

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