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Financial Reporting · Ind AS 12 Income Taxes

Ind AS 12 Appendix A: Changes in Tax Status and Ind AS 12 vs IAS 12

Updated 5 October 2026 · Fact-checked

A change in the tax status of an entity or its shareholders creates current and deferred tax consequences. Under Ind AS 12 Appendix A, you recognise them in profit or loss, unless they relate to items earlier recognised in OCI or equity, where they follow those items. For Ind AS 12 vs IAS 12, quote only differences confirmed in ICAI's Appendix 1.

Understand Appendix A: Changes in Tax Status and Ind AS 12 vs IAS 12

Tax status means the basis on which an entity is taxed. It can change for the entity itself. For example, a tax-exempt entity becomes taxable, or a taxable entity gets an exemption. It can also change because of its shareholders. For example, the entity's or its shareholders' tax residence or exemption changes, and that alters the rate or rules that apply to the entity.

A change in status does not change the carrying amounts of assets and liabilities. It changes the tax rules, rates or bases that apply to them. So the tax base and the expected tax on recovery or settlement change. That is why the effect shows up in current tax and, mainly, in deferred tax.

Appendix A, titled 'Changes in the Tax Status of an Entity or its Shareholders' (the Ind AS equivalent of SIC-25), gives one core rule. Recognise the current and deferred tax consequences of the change in the same way as other tax effects. They go to profit or loss, unless they relate to transactions or events recognised outside profit or loss. If the item was recognised in OCI, the tax effect goes to OCI. If it was recognised directly in equity, the tax effect goes to equity. This is backward tracing, the same principle as in the main standard.

In practice, you remeasure deferred tax balances using the new status. You also reassess whether deferred tax assets are probable of recovery. You recognise the effect in the period in which the change in status occurs.

The second part of this topic is comparison of Ind AS 12 with IAS 12. Ind AS 12 is based on IAS 12, and ICAI's Appendix 1 to the standard lists the differences. Learn that exact list from the ICAI study material for your attempt. Do not assert differences you cannot confirm from it, and do not describe the list as complete or as only terminology.

Key rules to remember

Core rule of Appendix A
Tax effect of change in status → profit or loss, unless it relates to items recognised in OCI or equity
Items outside profit or loss carry their tax effect to the same place (OCI or equity). This is backward tracing.
Deferred tax on remeasurement
Deferred tax = Temporary difference × Tax rate applicable under the new status
The temporary difference is the carrying amount less the tax base, measured at the date of change. If the new status brings no tax on recovery, the balance is derecognised.
Split of the adjustment
Total change in deferred tax = Portion to profit or loss + Portion to OCI + Portion to equity
Split by where the underlying item was originally recognised. Check that the parts add up to the total.
Recoverability of deferred tax assets
Reassess DTA at the date of change: recognise only if taxable profit is probable under the new status
A change in status can create or remove the taxable profit against which a DTA is used.
Ind AS 12 vs IAS 12
Quote only the differences listed in ICAI's Appendix 1 comparison
Do not add differences from memory that you cannot place in Appendix 1.

How to solve Appendix A: Changes in Tax Status and Ind AS 12 vs IAS 12 questions

Use this method for any question on a change in tax status. It works whether the entity or its shareholders are affected.

  1. 1Identify the change. State who is affected (the entity or its shareholders), what the old status was, what the new one is, and the date it takes effect.
  2. 2Link the change to Appendix A. Say that it has current and deferred tax consequences and that these are recognised in the period of change.
  3. 3List the assets and liabilities with temporary differences. Find the carrying amount and the tax base of each at the date of change.
  4. 4Remeasure deferred tax using the rate and rules under the new status. Compute the new balance and compare it with the old balance. The difference is the adjustment.
  5. 5Trace each part of the adjustment to its origin. Parts linked to revaluation or other OCI items go to OCI. Parts linked to items taken directly to equity go to equity. The rest goes to profit or loss.
  6. 6Reassess the recoverability of any deferred tax assets, including those on unused tax losses, under the new status.
  7. 7Pass the journal entry and state the disclosure. Close with a one-line conclusion citing Appendix A and the backward tracing principle.

Quickest way: Three-bucket method for status change questions

When to use it: Use it in MCQs and short written answers when time is tight and the numbers are simple.

  1. Compute the full deferred tax change: temporary difference × new rate, minus the old balance.
  2. Ask where each underlying item was recognised: profit or loss, OCI or equity. Make three buckets.
  3. Put the tax effect of each item in its own bucket. Check that the buckets add up to the total.
  4. Write the rule in one line: all in profit or loss, except what relates to items outside profit or loss.

Common mistakes in Appendix A: Changes in Tax Status and Ind AS 12 vs IAS 12

  • Putting the entire effect of the change in status in profit or loss.

    Students remember 'status change goes to profit or loss' and ignore the exception for OCI and equity items.

    Fix: Always check whether any part of the temporary difference arose from revaluation or an equity item. Trace that part to OCI or equity.

  • Applying the new status to prior periods and restating comparatives.

    Students confuse a change in tax status with a change in accounting policy or an error correction.

    Fix: A change in tax status is a change in circumstances. Recognise the effect in the period of change. Do not restate earlier periods.

  • Forgetting to reassess deferred tax assets.

    Students focus only on the rate and deferred tax liabilities.

    Fix: Add a step to test whether future taxable profit is probable under the new status. Include unused tax losses.

  • Using the old tax rate to measure the remeasured balances.

    The old rate was used in earlier years, and students copy the working.

    Fix: Use the rate and tax rules that apply to the entity under its new status for the period when the temporary differences reverse.

  • Inventing differences when asked for the differences between Ind AS 12 and IAS 12.

    Students try to fill the answer from memory, or assume the differences are only minor wording.

    Fix: Quote only the differences you have learnt from ICAI's Appendix 1 comparison. Do not claim the list is only terminology, and do not add differences you cannot confirm.

  • Confusing Appendix A (change in tax status) with Appendix C (uncertainty over income tax treatments).

    Both are appendices to Ind AS 12 and both deal with tax consequences.

    Fix: Appendix A is about a change in the status of the entity or shareholders. Appendix C is about uncertainty over whether a tax authority will accept a treatment.

Worked examples

Example 1

Case: Alpha Ltd was tax-exempt on its profits. On 1 April 2027, its exemption ended and it became taxable at 25%. At that date, plant had a carrying amount of ₹50,00,000. Once the entity is taxable, the amount deductible against taxable economic benefits from recovering the plant is ₹30,00,000, so the tax base is ₹30,00,000. Of the carrying amount, ₹8,00,000 arose from a revaluation surplus credited to OCI. No deferred tax was recognised earlier. Assume the entire ₹8,00,000 revaluation increase forms part of the ₹20,00,000 taxable temporary difference. Compute the deferred tax on the change and show where it is recognised.

Show the solution
  1. Identify the change: the entity's own status changed from exempt to taxable, effective 1 April 2027. Appendix A applies.
  2. Fix the tax base under the new status. Once Alpha Ltd is taxable, ₹30,00,000 is deductible against taxable economic benefits from the plant. So the tax base at the date of change is ₹30,00,000.
  3. Temporary difference = ₹50,00,000 − ₹30,00,000 = ₹20,00,000. This is a taxable temporary difference.
  4. Deferred tax liability = ₹20,00,000 × 25% = ₹5,00,000.
  5. State the assumption: the whole ₹8,00,000 revaluation increase sits within the ₹20,00,000 temporary difference. The tax on that part is ₹8,00,000 × 25% = ₹2,00,000. This goes to OCI because it relates to the revaluation surplus, which was credited to OCI. The change in status does not decide this. The revaluation does.
  6. The remaining temporary difference is ₹20,00,000 − ₹8,00,000 = ₹12,00,000. The tax on it is ₹12,00,000 × 25% = ₹3,00,000. This goes to profit or loss.
  7. Check: ₹2,00,000 + ₹3,00,000 = ₹5,00,000, which equals the total deferred tax liability.
  8. Journal entry: Deferred tax expense (profit or loss) Dr ₹3,00,000; Revaluation surplus (OCI) Dr ₹2,00,000; To Deferred tax liability ₹5,00,000.

Answer: Alpha Ltd recognises a deferred tax liability of ₹5,00,000 in the period of the change. On the stated assumption that the whole ₹8,00,000 revaluation increase is within the ₹20,00,000 temporary difference, ₹3,00,000 is charged to profit or loss. ₹2,00,000 is debited to the revaluation surplus in OCI, because it follows the revaluation that created that part of the temporary difference.

Example 2

Case: Beta Ltd is taxable at 25%. On 1 October 2027, its tax status changes. It ceases to be taxable, and its profits are taxed at nil, including the period in which its temporary differences reverse. Its books show a deferred tax liability of ₹12,00,000 on taxable temporary differences of ₹48,00,000 (₹48,00,000 × 25%). Of the temporary differences, ₹12,00,000 arose from a revaluation surplus credited to OCI, and the deferred tax on it was charged to OCI. The other ₹36,00,000 arose from items recognised in profit or loss, and the deferred tax on it was charged to profit or loss. Show the accounting on the change.

Show the solution
  1. Identify the change: this is a change in the tax status of the entity, from taxable to taxed at nil. It is not a change in the tax rate under the existing regime. Appendix A applies, and the effect is recognised in the period of change.
  2. Under the new status, no tax will arise when the temporary differences reverse. So the deferred tax liability of ₹12,00,000 is no longer required. Remeasure it to nil.
  3. The tax effects follow the items they relate to. The deferred tax on the revaluation part is ₹12,00,000 × 25% = ₹3,00,000. It was charged to OCI earlier, so its reversal goes to OCI.
  4. The deferred tax on the other temporary differences is ₹36,00,000 × 25% = ₹9,00,000. It was charged to profit or loss earlier, so its reversal goes to profit or loss.
  5. Check: ₹9,00,000 + ₹3,00,000 = ₹12,00,000, the full balance, which also equals ₹48,00,000 × 25%.
  6. Journal entry: Deferred tax liability Dr ₹12,00,000; To Deferred tax (profit or loss) ₹9,00,000; To Revaluation surplus (OCI) ₹3,00,000.
  7. Disclose the amount and the reason for the change in the tax expense note.

Answer: Beta Ltd derecognises the deferred tax liability of ₹12,00,000 because of the change in its tax status. It credits ₹9,00,000 to profit or loss, where that tax was originally charged, and ₹3,00,000 to OCI, where the tax on the revaluation was originally charged. This is done in the period of the change.

Exam tips

  • Write the rule first, then apply it. A strong answer is: rule (Appendix A), facts (what changed), working (temporary difference × rate), conclusion (where it is recognised).
  • In case MCQs, look for any hint of revaluation or an item taken to equity. It decides whether the whole effect goes to profit or loss.
  • For the Ind AS 12 vs IAS 12 question, keep the answer short and accurate. Give only the differences you can confirm from Appendix 1 of the study material.
  • Do not call the change an error or a change in accounting policy. Examiners test whether you know the effect is recognised in the period of change.
  • Show the split of the adjustment as a small table-style list in your working so the marker can see that the parts add up to the total.

Practice questions from Ind AS 12 Income Taxes

Appendix A: Changes in Tax Status and Ind AS 12 vs IAS 12: frequently asked questions

What is a change in tax status under Ind AS 12 Appendix A?

It is a change in the way an entity is taxed, caused by a change in the entity itself or in its shareholders. For example, the entity's or its shareholders' tax residence or exemption changes. It leads to current and deferred tax consequences that you must account for.

Where is the tax effect of a change in tax status recognised?

It is recognised in profit or loss, unless it relates to transactions or events recognised outside profit or loss. If the underlying item was in OCI, the tax effect goes to OCI. If it was taken directly to equity, the tax effect goes to equity.

How is Ind AS 12 different from IAS 12?

Ind AS 12 is based on IAS 12, and ICAI's Appendix 1 lists the differences. Learn that list from the ICAI study material for your attempt. Quote only differences you can confirm from it.

Do I restate comparatives when the tax status changes?

No. A change in tax status is a change in circumstances, not a change in accounting policy or an error. You recognise the effect in the period when the change occurs.