AS-22 introduced by ICAI Deferred Tax Accounting

Keeping pace with international practices, AS-22 was introduced by the Indian Institute of Chartered Accountants (ICAI) and deferred tax accounting was made mandatory for all Indian listed companies.

As per AS-22, a company is liable to provide for deferred tax liability on the first day it accounts for such income. The basic premise being that revenues and expenses of an accounting period should meet matching principle and disparity in computing income for tax and book purposes should be appropriately resolved.

Differences between the two sets of computation of income can be classified into two categories; permanent and timing differences. Permanent differences arise with respect to expenditure legitimately incurred but are wholly or partially disallowed for tax purposes.

Such expenses do not give rise to deferred tax provision. Temporary differences are those that arise due to timing reasons. A typical example is provision for depreciation with varying rates for book purposes and tax purposes. Rates prescribed for company law are minimum rates, taking into consideration useful life of the asset.

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Santosh Puthran
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