Ind AS 12 Income Taxes: A Practitioner Guide for FY 2026-27
Ind AS 12 (Income Taxes) is the Indian Accounting Standard that prescribes how companies account for current and deferred income taxes in their financial statements.
The Ministry of Corporate Affairs notified Ind AS 12 via the Companies (Indian Accounting Standards) Rules, 2015. It became mandatory from 1 April 2016 for Phase I Ind AS companies and replaced AS 22 for those entities.
For FY 2026-27, Ind AS 12 remains critical due to ongoing scrutiny of tax rate reconciliations in listed company annual reports. Effective tax rate analytics and detailed disclosures are now standard practice across industries.
Ind AS 12 at a Glance
Ind AS 12 sets out the principles for recognising current and deferred taxes using the balance sheet approach. It primarily serves finance teams and statutory auditors preparing or reviewing financial statements under Indian Accounting Standards.
| Field | Value |
|---|---|
| Standard Number | Ind AS 12 |
| Full Name | Income Taxes |
| Issuing Body | ICAI (Accounting Standards Board) |
| Notified By | MCA, Companies (Indian Accounting Standards) Rules, 2015, dated 16 February 2015 |
| Effective Date | 1 April 2015 (voluntary), 1 April 2016 (mandatory Phase I) |
| Supersedes | AS 22 (Accounting for Taxes on Income) for Ind AS-applicable entities |
| Equivalent Standard | AS 22 ↔ Ind AS 12 ↔ IAS 12 |
| Applies To | All companies required to follow Indian Accounting Standards. Ind AS 12 prescribes accounting for current and deferred taxes using the balance sheet approach, where deferred taxes arise from temporary differences between carrying amounts and tax bases of assets and liabilities. |
What is Ind AS 12: Income Taxes?
Ind AS 12 defines how entities must account for both current tax payable based on taxable profits and deferred tax arising from temporary differences between accounting and tax values of assets and liabilities. The standard mandates a balance sheet approach, deferred tax is recognised whenever there is a difference between book carrying amount and tax base.
The Institute of Chartered Accountants of India introduced Ind AS 12 as part of India's convergence with International Financial Reporting Standards. It replaced the older timing-difference model in AS 22 with a temporary-difference model aligned to IAS 12 issued by the International Accounting Standards Board.
CFOs, statutory auditors, CA students preparing for exams, and finance teams in listed or large private companies frequently use this standard in practice.
Objective of Ind AS 12
- Prescribe the accounting treatment for income taxes including current tax and deferred tax.
- Establish principles for recognising deferred tax assets and liabilities arising from temporary differences between accounting and tax bases.
- Specify recognition of tax effects of transactions in profit or loss, OCI, or directly in equity, consistent with the underlying transaction.
These objectives ensure that companies present a true and fair view of their financial position as required by Section 129 of the Companies Act, 2013. Accurate reflection of all expected future tax consequences supports transparent reporting to shareholders and regulators.
Who Must Apply Ind AS 12?
Entities covered, applicability table
Ind AS 12 applies to all companies required to prepare financial statements under Indian Accounting Standards as per the MCA roadmap:
| Category | Applicability Period |
|---|---|
| Listed companies (Phase I) | Mandatory from FY 2016-17 |
| Unlisted NBFCs > Rs 500 crore turnover | Mandatory from FY 2018-19 |
| All other companies meeting net worth thresholds (> Rs 250 crore) | Phased adoption as per MCA rules |
This includes holding, subsidiary, joint venture or associate entities if any group company meets these thresholds.
Scope exclusions
Ind AS 12 does not apply to:
- Government grants not in the form of a tax (see Ind AS 20).
- Investment tax credits reported as government grants.
When the standard does not apply
Government grants accounted under Ind AS 20 are outside this standard's scope. Investment tax credits presented as government grants are also excluded, refer to Ind AS 20 instead.
Key Definitions under Ind AS 12
| Term | Definition |
|---|---|
| Current tax | Amount payable or recoverable based on taxable profit or loss for a period. |
| Deferred tax liabilities | Future income taxes payable due to taxable temporary differences. |
| Deferred tax assets | Future income taxes recoverable from deductible temporary differences or unused losses/credits. |
| Temporary differences | Differences between asset/liability carrying amount in books versus its tax base. |
| Taxable temporary differences | Temporary differences resulting in future taxable amounts when determining taxable profit/loss. |
| Deductible temporary differences | Temporary differences resulting in future deductible amounts when determining taxable profit/loss. |
| Tax base of an asset/liability | Amount attributed to an asset/liability for income-tax purposes. |
Recognition and Measurement under Ind AS 12
When to recognise
The entity recognises current tax as a liability when unpaid amounts relate to current or prior periods (Para 13). If payments exceed amounts due, it recognises an asset. Deferred tax liabilities must be recognised for all taxable temporary differences (Para 15), except limited cases such as initial recognition exceptions or goodwill arising from business combinations.
Deferred tax assets are recognised only when it is probable that future taxable profit will be available against which deductible temporary differences or carry-forward losses can be utilised (Para 24). For entities with recent losses, Para 35 requires convincing evidence before recognising deferred tax assets on unused losses.
Initial measurement
Current tax is measured at the amount expected to be paid or recovered using rates enacted or substantively enacted by period-end (Para 46). Deferred taxes are measured at rates expected at reversal, again based on laws enacted or substantively enacted by reporting date (Para 47).
**Deferred Tax Formula:**
Deferred Tax = Temporary Difference × Applicable Tax Rate
Where
Temporary Difference = Carrying Amount, Tax Base
Deferred taxes are not discounted regardless of timing (Para 53).
Subsequent measurement
At each reporting date, management reviews deferred tax assets' carrying amount. If it becomes unlikely that sufficient taxable profits will arise, such as changes in forecasts, the asset must be reduced accordingly (Para 56). Conversely, if new evidence arises supporting future utilisation, previously unrecognised deferred tax assets may be recognised up to probable limits.
Tax effects follow their underlying transaction:
- Recognise in profit or loss if related item appears there.
- Recognise in OCI if underlying item is shown in OCI.
- Recognise directly in equity if related item bypasses P&L/OCI (Para 58).
Set-off rules apply separately to current-tax balances and deferred-tax balances; set-off is permitted only where legal right exists and intent is present per Para 71-72.
Balance Sheet Approach to Deferred Tax
Ind AS 12 adopts a balance sheet approach, deferred taxes arise from all temporary differences between book carrying values and corresponding income-tax bases. This method captures more items than the previous timing-difference approach under AS 22.
Common sources include:
- Depreciation method/rate mismatches between books and Income Tax Act
- Provisions not yet allowed as deductions by authorities
- Fair value adjustments on financial instruments
- Defined benefit obligations
- Intra-group profits eliminated during consolidation
This comprehensive approach ensures that both timing-related reversals and permanent revaluations affecting equity are captured within deferred taxation calculations, aligning Indian practice with global IFRS standards.
Worked Examples on Ind AS 12
Example 1: Deferred tax on accelerated tax depreciation
Maharashtra Cement Ltd purchased plant machinery worth Rs 100 crore on 1 April 2025.
Tax depreciation under Income Tax Act 2025 is calculated at 40% reducing balance; book depreciation under Ind AS 16 uses 10% straight-line.
Applicable corporate income-tax rate is 25%.
Computation Table
| Item | Book Value / Amount | Tax Value / Amount |
|---|---|---|
| Cost | Rs 100 crore | Rs 100 crore |
| Depreciation Year 1 | Rs 10 crore | Rs 40 crore |
| Carrying amount end-Year 1 | Rs 90 crore | Rs 60 crore |
| Temporary difference | Rs 30 crore |
Deferred Tax Liability = Rs 30 crore × 25% = Rs 7.50 crore
Journal Entry
Dr Deferred Tax Expense (P&L) Rs 7.50 crore
Cr Deferred Tax Liability Rs 7.50 crore
This liability reverses over time as book depreciation catches up with lower residual value compared to accelerated write-off under income-tax law.
Example 2: Deferred tax asset from unused tax losses
Sundaram Capital Ltd has accumulated unused income-tax losses totaling Rs 25 crore from FY 2024-25 which can be carried forward eight years per ITA 2025.
For FY 2025-26 it expects profits of Rs 10 crore; corporate income-tax rate remains at 25%. Management has strong evidence supporting future profitability.
Computation Table
| Item | Amount | Comment |
|---|---|---|
| Unused losses carried forward | Rs 25 crore | As per IT return |
| Applicable corporate income-tax rate | , | Applied below |
| Deferred Tax Asset | Rs 6.25 crore | Rs25cr ×25% |
Recognition criteria require probable evidence; Para 35 requires convincing support where there’s recent history of losses.
Asset recognised only up to extent expected utilised against forecasted profits within carry-forward period.
Journal Entry
Dr Deferred Tax Asset Rs 6.25 crore
Cr Deferred Tax Income (P&L) Rs 6.25 crore
Management must review annually whether continued recognition remains appropriate; reverse if utilisation becomes improbable due to changed forecasts or business conditions.
Disclosure Requirements under Ind AS 12
Schedule III to the Companies Act, 2013 and Ind AS 12 require detailed disclosures on income taxes. These disclosures enable users of financial statements to understand the nature, timing, and amount of current and deferred tax recognised and its impact on the entity’s results and financial position.
| Item | Requirement | Para Reference |
|---|---|---|
| Major components of tax expense | Current tax, deferred tax, prior period adjustments, OCI tax effects | Para 79 |
| Reconciliation between expected tax and actual tax | Numerical reconciliation between tax expense and accounting profit times applicable tax rate | Para 81(c) |
| Explanation of changes in applicable tax rates | Compared to previous accounting period | Para 81(d) |
| Aggregate amount of temporary differences | Associated with investments in subsidiaries, branches, associates, JVs for which deferred tax has not been recognised | Para 81(f) |
| Deferred tax assets/liabilities | Amount recognised in balance sheet for each type of temporary difference and unused tax losses/credits | Para 81(g) |
| Tax expense/benefit relating to discontinued operations | If material | Para 81(h) |
| Income tax consequences of dividends to shareholders | Proposed/declared after end of period but before authorisation for issue | Para 81(i) |
Statutory auditors must verify these disclosures comply with Ind AS 12 and Schedule III as part of their opinion under SA 700.
Common Mistakes & Industry-Specific Considerations
Common errors auditors flag
- Applying AS 22's income statement approach (timing differences) instead of Ind AS 12's balance sheet approach (temporary differences)
- Recognising deferred tax assets without sufficient evidence of probable future taxable profits
- Discounting deferred tax balances (prohibited under Ind AS 12)
- Failing to recognise deferred tax on fair value gains in OCI directly in OCI
- Incorrect identification of tax base, especially for assets with separately measured components
- Set-off of current or deferred taxes without meeting the criteria in Paras 71-72
Industry application notes
Listed companies face close scrutiny over their effective tax rate reconciliation. Annual reports must explain variances clearly. In our audit practice we frequently observe that analysts question even minor unexplained differences between book and statutory rates.
Infrastructure entities often deal with Section 80-IA incentives under the Income Tax Act. These create permanent differences and complex deferred-tax positions. Special Purpose Vehicle (SPV)-level analysis is essential for accurate recognition.
Banking and NBFCs encounter significant deferred-tax implications from provisions for non-performing assets. The Expected Credit Loss (ECL) model under Ind AS 109 leads to temporary differences until Indian tax law aligns with Ind AS recognition.
Ind AS 12 vs AS 22 vs IFRS: Key Differences
The following table summarises how Ind AS 12 differs from its predecessor (AS 22) and from IAS 12 under IFRS:
| Aspect | AS | Ind AS | IFRS |
|---|---|---|---|
| Approach | Income statement approach (timing differences) | Balance sheet approach (temporary differences) | Same as Ind AS |
| Tax effect of revaluation | Not recognised | Recognised on balance sheet revaluations | Same |
| DTA on unused losses | Recognised on virtual certainty | Recognised on probable basis (Para 24) | Same |
| Discounting | Prohibited | Prohibited (Para 53) | Prohibited |
| OCI/equity items | Tax effect typically in P&L | Tax effect follows underlying item (Para 58) | Same |
India has adopted the core principles of IAS 12 through Ind AS 12 without major carve-outs. However, certain transitional reliefs or clarifications may be notified by the Ministry of Corporate Affairs from time to time. Entities must apply Indian legal interpretations where they differ from international practice.
Latest Amendments to Ind AS 12 (FY 2026-27)
- Tax effects of dividends paid on instruments classified as equity, MCA Notification 23 March 2022, effective annual periods beginning on or after 1 April 2023.
No further amendments have been notified to Ind AS 12 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.
Related Standards You Should Know
- [AS 22](/as-22-accounting-for-taxes-on-income/), Equivalent income tax standard for non-Ind AS companies; uses different timing-differences approach.
- [Ind AS 1](/ind-as-1-presentation-of-financial-statements/), Presentation of tax expense in P&L follows Ind AS 1 framework.
- [Ind AS 8](/ind-as-8-accounting-policies-changes-in-estimates-errors/), Tax effect of policy changes and prior period error corrections.
- [Ind AS 34](/ind-as-34-interim-financial-reporting/), Estimated annual effective tax rate at interim periods.
- [Ind AS 103](/ind-as-103-business-combinations/), Deferred tax recognised on identifiable assets and liabilities at acquisition.
Need Help with Ind AS 12 Compliance?
Patron Accounting LLP supports CFOs, finance teams, and statutory auditors across India with end-to-end compliance for Ind AS 12 Income Taxes. Our specialists ensure accurate computation, disclosure, and audit-readiness, whether you are a listed company or a mid-market private limited entity.
Our services include:
- Statutory Audit
- Ind AS Advisory
- Financial Reporting & Schedule III Compliance
- Disclosure Review
Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.
Frequently Asked Questions (FAQs)
All companies required to prepare financial statements under Indian Accounting Standards must comply with Ind AS 12 Income Taxes. This includes listed companies, large unlisted NBFCs, and any group entity falling under the MCA’s prescribed thresholds for mandatory adoption.
The balance sheet approach in Ind AS 12 recognises deferred taxes based on all temporary differences between book carrying amounts and their respective tax bases. In contrast, the income statement approach under AS 22 only considers timing differences affecting profit or loss.
Deferred-tax recognition principles are largely aligned between Ind AS 12 and IAS 12 issued by the International Accounting Standards Board. Both use a temporary-difference model; however, Indian regulatory guidance may introduce specific clarifications or transitional reliefs where required by local law.
Yes. An entity can recognise a deferred-tax asset arising from carry-forward losses if it is probable that sufficient future taxable profit will be available for set-off. Convincing evidence is required when there is a recent history of losses per Para 35.
No. Deferred-tax assets or liabilities are never discounted under Ind AS 12 regardless of when they are expected to reverse. This prohibition is explicitly stated in Para 53 to ensure comparability across reporting periods.
Auditors typically find errors such as using the timing-difference method instead of temporary-difference method, recognising DTAs without probable future profits evidence, or failing to match tax effects directly with items recognised in OCI or equity as required by Paras 58-59.
Entities must disclose a numerical reconciliation between total reported income-tax expense and accounting profit multiplied by applicable statutory rates per Para 81(c). This helps users understand reasons for deviations from expected effective rates, such as permanent differences or incentives claimed.
Set-off is permitted only if there is a legally enforceable right to offset current taxes against each other or intent exists to settle simultaneously per Paras 71-72. For deferred taxes, both legal right and same taxing authority criteria must be met before offsetting balances.
Yes. If dividends are proposed or declared after year-end but before authorisation for issue, entities must disclose any related income-tax consequences as per Para 81(i). This ensures transparency regarding post-balance-sheet events impacting shareholders’ returns.
Industries such as infrastructure (tax holidays), banking/NBFCs (NPA provisions), or listed companies (analyst scrutiny) encounter unique issues when applying Ind AS 12. Accurate identification of temporary differences and robust documentation are critical for compliance across sectors.
About This Article
Reviewed by CA & CS Team · Patron Accounting LLP
Technical reviewer: CA Sundram Gupta, FCA
Last reviewed: 2026-05-02
Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Indian Accounting Standards) Rules, 2015, dated 16 February 2015) · IFRS Foundation