15 July 2013
X LTD uses SLM of Depreciation in Financial books Deferred tax liability in case of X lTD is only due to depreciation timing diffrence to avoid deferred tax liability X LTD is planning to provide depreciation in financial books on the method and rate as per income tax what are the consequences to this cases???
A company cannot provide depreciation at the rates prescribed by the Income Tax Act. It has to compulsorily follow the rates prescribed by the Companies Act. In case the rates provided are different from that prescribed by the Companies Act, then there has to be a strong justification and an appropriate note has to be included in the Notes to Accounts.
Secondly, if the comapny wants to change its method of depreciation, then it will have to do that with retrospective effect and separate disclosure under AS-5 needs to be given. Also for changing the method there has to be a proper justification. The situation provided by you is not at all good enough to bring about a change in the existing stand. Rather it would be better to have a DTL/DTA.
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