Ind AS 12: Income Taxes

Standard orientation

What Ind AS 12 is designed to achieve

Prescribe accounting for current and future tax consequences of recovering assets, settling liabilities and recognising transactions and events.

Scope: Applies to domestic and foreign taxes based on taxable profits, including specified withholding taxes. It does not prescribe grant or investment-credit accounting methods but addresses related temporary differences.

Current tax

Tax payable or recoverable for current and prior taxable profit.

Temporary difference

Carrying amount minus tax base.

DTL

Future taxable amount, subject to limited exceptions.

DTA

Future deduction or loss/credit benefit, recognised when utilisation is probable.

Full standard map

Paragraph-by-paragraph register

Paragraphs	Requirement and simple decode
Objective	Core principle Recognise future tax effects and account for tax consistently with the underlying transaction.
1–4	Scope Covers profit-based domestic/foreign taxes and withholding taxes.
5–6	Definitions Defines current tax, deferred tax, tax base and temporary differences.
7–11	Tax base Determine future deductions and taxable amounts for assets, liabilities and unrecognised items.
12–14	Current tax Recognise unpaid amounts as liabilities, overpayments and carryback benefits as assets.
15–23	Taxable differences Recognise DTLs except initial goodwill and qualifying initial-recognition exception.
22A	Single transaction The exemption does not cover transactions producing equal taxable and deductible differences.
24–33	Deductible differences Recognise DTAs only to probable-utilisation extent, subject to exceptions.
32A–33	Leases and decommissioning Apply amended initial-recognition mechanics to related DTA and DTL.
34–36	Losses and credits Require probable taxable profits and convincing evidence when recent losses exist.
37	Reassessment Review unrecognised DTAs each reporting date.
38–45	Investments Apply reversal-control and probability tests to subsidiaries, branches, associates and joint arrangements.
46–48	Current-tax measurement Use enacted or substantively enacted rates, including progressive-rate effects.
51–52A	Deferred-tax measurement Reflect expected recovery/settlement manner and distribution consequences.
53	No discounting Deferred tax is not discounted.
54–56	DTA review Reduce or restore assets as probability changes.
57–60	Tax in P&L Recognise in profit or loss unless linked to OCI, equity or acquisition accounting.
61–65A	Tax outside P&L Follow the underlying item to OCI or equity.
66–68	Business combinations Deferred tax affects identifiable net assets, goodwill or bargain gain.
68A–68C	Share-based payments Allocate tax effects based on remuneration and equity treatment.
69–76	Offsetting Requires legal right and prescribed settlement/entity/tax-authority conditions.
77–78	Presentation Present tax expense and relevant exchange differences.
79–88	Disclosure Major components, rate reconciliation, losses, investment differences, DTA evidence and tax outside P&L.
89–98	Effective history Includes the 31 March 2023 single-transaction notification.
Appendix A	Tax-status changes Allocate effects based on the underlying event.
Appendix C	Uncertain tax treatments Assume examination and use most-likely amount or expected value as predictive.

Major areas decoded

Technical requirements in simple language

Balance-sheet approach

Start with carrying amount and tax base, not only tax-computation timing differences.

Recovery manner

Tax rate and tax base can depend on use, sale or distribution.

Lease amendment

ROU asset and lease liability can create equal initial taxable/deductible differences requiring DTA and DTL.

Loss DTAs

Forecasts need convincing evidence and no double-counting.

Business combinations

Deferred tax changes net assets and goodwill.

Uncertain positions

Group or separate treatments and use the method best predicting resolution.

Pillar Two

IFRS relief and disclosures require separate Indian notification analysis.

Visual learning

Finin2min decision map

Exceptions

What professionals overlook

No DTL for initial goodwill.
The amended initial-recognition exemption does not cover equal taxable/deductible differences.
DTA always requires probable utilisation.
Recent losses require convincing evidence.
Investment DTL exemption requires control and no probable reversal.
Deferred tax is never discounted.
Tax follows the underlying item.
Offsetting has strict criteria.
Tax authorities are assumed to examine with full knowledge.

Practical application

Transaction examples

Fact

Treatment

Reason

Tax depreciation faster than book

DTL

Carrying amount exceeds tax base.

Provision deductible on payment

DTA if recoverable

Liability creates future deduction.

Unused loss with credible profit

DTA to probable extent

Forecast supports use.

Lease ROU and liability

Recognise DTA/DTL

Equal initial differences are not exempt.

OCI revaluation

Tax in OCI

Tax follows the item.

Binary uncertain deduction

Most-likely method may fit

Use the best predictive method.

Accounting mechanics

Illustrative journal entries

Current tax

Dr Current tax expense Cr Current tax payable

DTL

Dr Deferred tax expense / OCI / Equity Cr Deferred tax liability

DTA

Dr Deferred tax asset Cr Deferred tax income / OCI / Equity

Uncertain tax increase

Dr Tax expense Cr Tax liability

Exam and boardroom

Applied case studies

1. Lease

Applied case

ROU asset and lease liability are ₹100 crore and tax deductions arise through payments.

Finin2min analysis: Recognise related DTA and DTL under amended paragraphs, subject to recoverability.

2. Loss entity

Applied case

Forecast profit relies on uncommitted restructuring.

Finin2min analysis: Exclude unsupported actions and recognise DTA only on convincing evidence.

3. Subsidiary profits

Applied case

Parent controls dividends and expects no distribution.

Finin2min analysis: Exemption applies only when reversal timing is controlled and reversal is not probable.

4. Later tax rate

Applied case

Rate is enacted after reporting date.

Finin2min analysis: Do not use at reporting date; disclose material later effect.

5. Transfer pricing

Applied case

No single outcome dominates.

Finin2min analysis: Expected value may better predict resolution.

Global comparison

Ind AS versus IFRS and US GAAP

Topic	Ind AS	IFRS	US GAAP
Single transaction	Notified in India in 2023.	IAS 12 amendment effective 2023.	US lease deferred-tax mechanics differ.
Pillar Two	Check Indian notification; do not assume.	Temporary exception and targeted disclosures.	US guidance follows its own model.
DTA threshold	Probable.	Broadly aligned.	Recognise then valuation allowance under more-likely-than-not model.
Uncertainty	Appendix C / IFRIC 23 approach.	IFRIC 23.	ASC 740 recognition and measurement.
Discounting	Prohibited.	Prohibited.	Also generally not discounted.

Implementation

Stakeholder implications

CFO/Tax

Own tax bases, forecasts and uncertainty.

Treasury/Legal

Track withholding and distribution effects.

M&A

Model acquisition deferred tax.

FP&A

Provide supportable taxable-profit forecasts.

Audit committee

Challenge loss DTAs and uncertain positions.

Watchlist

Common errors

Using only timing differences.
Ignoring tax bases for unrecognised items.
Applying old lease exemption.
Recognising loss DTA without evidence.
Discounting deferred tax.
Using later-enacted rates.
Putting all tax in P&L.
Improper offsetting.
Ignoring acquisition deferred tax.
Assuming Pillar Two IFRS rules automatically apply.

Finin2min Q&A

Frequently asked questions

1. What creates deferred tax?

Temporary differences and unused losses or credits.

2. Are all taxable differences recognised?

Generally yes, subject to limited exceptions.

3. Can deferred tax be discounted?

No.

4. How are leases treated after 2023?

Related DTA and DTL are recognised when equal differences arise.

5. When can loss DTA be recognised?

When future utilisation is probable and supported.

6. Does IAS 12 Pillar Two automatically apply?

No; check MCA notification.

Two-minute revision

Finin2min cheat sheet

CARRYING AMOUNT − TAX BASE → TEMPORARY DIFFERENCE → DTL/DTA → RECOVERABILITY → RATE → FOLLOW ITEM

Validation register

Primary sources

ICAI Compendium 2025–26Primary or authoritative validation source.
Open source ↗

ICAI Educational Material — Ind AS 12Primary or authoritative validation source.
Open source ↗

MCA-notified Ind AS 12 textPrimary or authoritative validation source.
Open source ↗

IFRS Foundation — IAS 12Primary or authoritative validation source.
Open source ↗

FASB Topic 740Primary or authoritative validation source.
Open source ↗