Amendment to Ind AS 12 – Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction

WHAT IS THE ISSUE?

MCA issued amendments to Ind AS 12 Income Taxes in order to address potential issues of inconsistency and interpretation by users in respect of the initial recognition exemption (“IRE”) detailed in paragraphs 15 and 24 of Ind AS 12 (for deferred tax liabilities and assets respectively).

Ind AS 12 contains exceptions from recognising the deferred tax effects of certain temporary differences arising on the initial recognition of some assets and liabilities, generally referred to as the ‘initial recognition exception’ or ‘IRE’. Prior to amendment views differed on whether (and to what extent) the IRE applied to transactions and events, such as leases, that lead to the recognition of an asset and a liability.

The amendments introduce an exception to the initial recognition exemption in Ind AS 12. Additional exclusions have been added to the IRE, detailed in paragraphs 15(b)(iii) and 24(c) for deferred tax liabilities and assets respectively. Applying this exception, an entity does not apply the initial recognition exemption for transactions that give rise to equal taxable and deductible temporary differences - such that deferred taxes are calculated and booked for both temporary differences, both at initial recognition and subsequently. Only if the recognition of a lease asset and le