Ind AS 12 Income Taxes Explained

Objective & scope

Recognise tax consequences in the period the underlying item arises

Ind AS 12 covers both current tax (the amount payable based on taxable profit) and deferred tax — the future tax consequences of temporary differences between the carrying amount of an asset or liability and its tax base.

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Key recognition & measurement points

Deferred tax liabilities and assets are recognised for (almost) all taxable and deductible temporary differences, not just the ones that will reverse soon.
A deferred tax asset is recognised only to the extent it's probable that future taxable profit will be available to utilise it.
Deferred tax is measured at the rates expected to apply when the asset is realised or the liability settled, based on rates (and laws) enacted or substantively enacted by the reporting date.
Deferred tax on items recognised outside profit or loss (e.g. through OCI or directly in equity) is itself recognised outside profit or loss.

What must be disclosed

A reconciliation between tax expense and accounting profit multiplied by the applicable tax rate.
The components of deferred tax assets and liabilities, and movements during the period.
Unrecognised deferred tax assets, including unused tax losses and credits, with expiry details where relevant.
The amount of deferred tax relating to items recognised in OCI or directly in equity.

Where teams get it wrong

Common pitfalls

Deferred tax is where reconciliations most often drift — missed temporary differences on right-of-use assets and lease liabilities (post Ind AS 116), DTAs recognised without a solid forecast of future taxable profit, and rate changes applied inconsistently across the DTA/DTL base.

See the Deferred Tax module

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