AS 22: Accounting for Taxes on Income
AS 22 requires recognition of deferred tax on timing differences between accounting income and taxable income, so that tax expense matches the period in which the related income is recognised.
- Standard
- AS 22
- Trigger
- Timing diff.
- Ind AS twin
- Ind AS 12
- DTA test
- Certainty
Applicability
Applies to all enterprises when accounting income differs from taxable income. Entities under Ind AS apply Ind AS 12, which uses a balance-sheet (temporary difference) approach.
Key points to remember
- Timing differences (e.g., depreciation rate differences, 43B disallowances) reverse in later periods and create deferred tax; permanent differences do not.
- Deferred tax assets are recognised only when there is reasonable certainty of future taxable income — and virtual certainty supported by convincing evidence where there are unabsorbed losses.
- Deferred tax is measured using tax rates enacted or substantively enacted by the balance sheet date.
- Tax expense = current tax + deferred tax, presented in the statement of profit and loss.
How the exam tests it
Computation of deferred tax asset/liability from a list of differences is a classic Intermediate question; the reasonable vs virtual certainty distinction is a standard MCQ trap.
Related standards
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Talk to usWhat is the difference between timing and permanent differences?
Timing differences originate in one period and reverse in later periods (e.g., different depreciation rates in books vs tax). Permanent differences never reverse (e.g., expenses disallowed outright) and therefore create no deferred tax.
When can a deferred tax asset be recognised for unabsorbed losses?
Only where there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available — a stricter test than the reasonable certainty applied to other deferred tax assets.
Which rate is used to measure deferred tax?
The tax rates and laws enacted or substantively enacted by the balance sheet date — not future announced rates that are yet to be enacted.