12 July 2009
The company carries on the business of financial services.It has brought forward losses.But is making profit from past 2 years and paying tax under Provisions of 115JB.The company did not have any fixed asset, acquired fixed asset in middle of last financial year.But no provision for DTA or DTL was made last year. My query is: 1) how should the deferred tax be treated this year?
2)What is the effect of brought forward losses on DTA or DTL?
3)Should the DTA or DTL added or reduced from brought forward losses?
4)The company has a brought forward loss of 10Lacs still ,based on the concept of prudence since the company is making profit from 3 years we can expect it to make profit in the next year also.As the company is paying taxes under MAT provisions on Book profit,can the company set off the MAT credit against the regular tax payable if the company makes huge profits next year?How can this be done?
5)Does MAT provisions have any bearing on Deferred tax? If yes how should the deferred tax be treated?
6)If the Company is not carrying financial services will the answers for above questions be different? What will be the answers? [..Sir i understand there are too many questions but i really need answers for all of them as i have to complete the finalization.I hope i can get answers for these questions.]
1) Calculate for current year DTA or DTL. (for arriving this if it is a recent company less than 5years completed calculate from the begining to till date and make a suitable provision for the year.) If not consider only past 3 years and make a provision.
2) For calculation purpose allow brought forward losses to arrive at the net taxable income.
3) DTA or DTL should be shown seperately in the balace sheet and it should not be adjusted against your brought forwarded losses.
4) Mat TAx will be treated as if you have paid advance tax. You have to calcuate the current liability and reduce the mat tax like advance tax adjustment showing the year in which you have paid and balance should be paid for the current year. If your mat tax is more and tax liability is less. Then to the extent of tax payable mat tax will be adjusted and balance will be carried over to next year.
5) Differed TAx and Mat tax are two different concepts do not confuse with one another. Mat tax is paid for the difference between your current book profit and income tax profit. Deffered tax is a tool to find out what is the future tax due or excess tax paid due the application of depreciation and other expenses which were debited to your profit and loss account and not claimed in income tax return or vice versa.
6) The treatment is same for all type of companies.
If you have any further doubt please post the same to clarify.
CAclubindia
