Financial Reporting · Ind AS 12 Income Taxes

Ind AS 12 Scope, Definitions and Current Tax

Updated 5 October 2026 · Fact-checked

Ind AS 12 prescribes how to account for income taxes. Current tax is the tax payable or recoverable on the taxable profit or loss of the period, measured using rates enacted or substantively enacted by the reporting date. To solve questions, compute taxable profit from accounting profit, apply the rate, compare with payments made, and recognise a liability or asset.

Understand Ind AS 12 Scope, Definitions and Current Tax

Ind AS 12 Income Taxes deals with taxes based on taxable profits, including domestic and foreign taxes, and withholding taxes payable by a subsidiary, associate or joint arrangement on distributions to the reporting entity. It does not deal with the methods of accounting for government grants (Ind AS 20) or investment tax credits, except for temporary differences arising from them. It also does not address interest and penalties related to income taxes, which are dealt with under other Ind AS.

Two profits sit at the heart of the standard. Accounting profit is profit or loss for the period before deducting tax expense. Taxable profit (tax loss) is the profit or loss for the period, determined under the tax rules, on which income taxes are payable or recoverable. They differ because the tax law and accounting standards treat some items differently.

The differences are of two kinds. Permanent differences never reverse, for example an expense wholly disallowed by tax law or income that is exempt. They affect taxable profit of the current period only and create no deferred tax. Temporary differences are differences between the carrying amount of an asset or liability and its tax base. They reverse in future periods and are the subject of deferred tax.

The tax base of an asset is the amount that will be deductible for tax against taxable economic benefits when the carrying amount is recovered. If those benefits are not taxable, the tax base equals the carrying amount. The tax base of a liability is its carrying amount less any amount that will be deductible for tax in future periods. For revenue received in advance, it is the carrying amount less any part that will not be taxable in future.

Current tax for the current and prior periods is recognised as a liability to the extent unpaid. If the amount already paid exceeds the amount due, the excess is an asset. A benefit relating to a tax loss that can be carried back to recover current tax of a previous period is recognised as an asset. Current tax is measured at the amount expected to be paid to or recovered from the tax authorities, using rates and laws enacted or substantively enacted by the end of the reporting period.

Key rules to remember

Taxable profit: Taxable profit = Accounting profit ± Permanent adjustments ± Timing adjustments Permanent adjustments (never reverse): - + Expenses permanently disallowed by tax law - − Income exempt or not taxable Timing adjustments (reverse in later periods): - + Add back accounting depreciation and provisions, because tax does not allow them until paid or in this form - − Deduct tax depreciation and expenses that tax allows only on payment - + Add income taxed earlier than it is recognised in accounts (e.g. advances received) - − Deduct income recognised in accounts now but taxed in a later period; Start from accounting profit. Make the permanent adjustments first: add disallowed expenses and deduct exempt income. These create no deferred tax. Then make the timing adjustments. Add back accounting charges that tax does not allow in the period. Deduct what tax allows in the period but accounts have not charged. Add income taxed earlier than it is recognised. Deduct income recognised now but taxed later. Timing items give rise to temporary differences.
Current tax: Current tax = Taxable profit × Enacted or substantively enacted tax rate; Use the rate applicable to the period's taxable profit at the reporting date.
Current tax liability or asset: Net position = Current tax for the period − Tax already paid (advance tax, TDS, TCS); A positive result is a liability. A negative result is a current tax asset.
Temporary difference (asset): Temporary difference = Carrying amount − Tax base; For liabilities the sign logic is reversed: Tax base − Carrying amount.
Tax base of a liability: Tax base = Carrying amount − Amount deductible for tax in future periods; For revenue received in advance: carrying amount − revenue that will not be taxable in future.
Offsetting current tax: Offset only if legally enforceable right exists AND intention to settle net or realise asset and settle liability simultaneously; Both conditions must hold.

How to solve Ind AS 12 Scope, Definitions and Current Tax questions

Use this sequence for any question on scope, definitions or current tax. It keeps the working clean and shows the examiner each standard-based step.

1Identify whether the tax is an income tax within Ind AS 12, meaning it is based on taxable profit. Taxes not based on profit, such as GST, customs duty or property tax, are outside its scope. Interest and penalties on income taxes are also not addressed by Ind AS 12 and are covered by other Ind AS.
2Start with accounting profit before tax from the statement of profit and loss.
3Adjust for permanent differences: add back disallowed expenses, deduct exempt income.
4Adjust for timing items that tax law treats differently, such as depreciation differences or expenses allowed on payment basis.
5Arrive at taxable profit and multiply by the enacted or substantively enacted rate to get current tax.
6Subtract advance tax, TDS and other payments to find the liability or asset.
7Where asked, compute tax base and temporary difference for each item and label it as permanent or temporary.
8State the journal entry and presentation, with a one-line reference to the relevant principle.

Quickest way: Reconcile, tax, net off

When to use it: Use in numerical questions with limited time where you only need current tax and the amount payable or recoverable.

Write accounting profit, then list only items that differ from tax law as plus or minus lines.
Total gives taxable profit. Multiply by the given rate.
Deduct taxes already paid to get the closing liability or asset.
If asked for the tax base, ask one question: how much will tax allow against this item in future? Compare it with the carrying amount.

Common mistakes in Ind AS 12 Scope, Definitions and Current Tax

Applying the tax rate to accounting profit instead of taxable profit.
Students rush and skip the reconciliation.
Fix: Always show the adjustment table first. Current tax is computed only on taxable profit.
Treating every difference as a temporary difference.
The terms are used loosely in everyday discussion.
Fix: Ask whether the difference reverses. Disallowed fines and exempt income never reverse, so they are permanent.
Confusing tax base with carrying amount, or computing temporary difference with the wrong sign.
The tax base definition is wordy and applies differently to assets and liabilities.
Fix: For assets, tax base is the future deductible amount. If benefits are not taxable, tax base equals carrying amount. Practise with a depreciation example.
Showing a current tax asset as an expense or ignoring it when advance tax exceeds the liability.
Students think current tax always creates a liability.
Fix: Net the tax due against payments made. An excess is recognised as an asset.
Using a tax rate announced but not yet enacted or substantively enacted.
Questions mention a proposed rate and students apply it.
Fix: Use only enacted or substantively enacted rates at the reporting date; a merely proposed rate is ignored.
Offsetting current tax assets and liabilities without checking the conditions.
Students assume amounts to the same authority can always be netted.
Fix: Check for a legally enforceable right and the intention to settle net or simultaneously.

Worked examples

Example 1

For the year, X Ltd (an Ind AS company) reports profit before tax of ₹80,00,000. The following are included: penalty paid for statutory violation ₹2,00,000 (not allowed under tax law); dividend income ₹5,00,000 exempt from tax; accounting depreciation ₹12,00,000 against tax depreciation ₹15,00,000. Advance tax paid and TDS total ₹17,00,000. The enacted tax rate is 25%. Compute taxable profit, current tax and the amount payable or recoverable.

Show the solution

Accounting profit = ₹80,00,000.
Add penalty (permanent difference, disallowed): ₹80,00,000 + ₹2,00,000 = ₹82,00,000.
Deduct exempt dividend (permanent difference): ₹82,00,000 − ₹5,00,000 = ₹77,00,000.
Add back accounting depreciation and deduct tax depreciation: ₹77,00,000 + ₹12,00,000 − ₹15,00,000 = ₹74,00,000.
Taxable profit = ₹74,00,000.
Current tax = ₹74,00,000 × 25% = ₹18,50,000.
Less advance tax and TDS ₹17,00,000. Balance = ₹1,50,000.
The depreciation difference is a temporary difference and gives rise to deferred tax, covered separately.

Answer: Taxable profit is ₹74,00,000. Current tax is ₹18,50,000. A current tax liability of ₹1,50,000 remains payable at the reporting date.

Example 2

On 31 March, Y Ltd holds equipment with carrying amount ₹6,00,000 and tax written-down value ₹4,50,000. The economic benefits from the equipment are taxable. It has also received ₹2,00,000 as advance for services, shown as a liability. Under tax law this advance was taxed when received. Determine the tax base of each item and the temporary difference, ignoring tax rate effects.

Show the solution

Equipment: tax base is the amount deductible against taxable benefits in future. Because the economic benefits from the equipment are taxable, the tax base equals the tax written-down value of ₹4,50,000.
Temporary difference on equipment = carrying amount − tax base = ₹6,00,000 − ₹4,50,000 = ₹1,50,000. Carrying amount exceeds tax base, so future taxable amounts arise.
Advance received: the liability's carrying amount is ₹2,00,000.
Revenue is already taxed, so none of it will be taxable in future. Tax base = carrying amount − revenue not taxable in future = ₹2,00,000 − ₹2,00,000 = ₹0.
Temporary difference on the advance = tax base − carrying amount = ₹0 − ₹2,00,000 = ₹(2,00,000). Future deductible amount arises.

Answer: Equipment: tax base ₹4,50,000, temporary difference ₹1,50,000 (taxable). Advance received: tax base ₹0, temporary difference ₹2,00,000 (deductible).

Exam tips

Show the reconciliation from accounting profit to taxable profit as a table. Marks are given for each correct adjustment.
Label each item as permanent or temporary. Examiners often test this distinction in case scenarios.
Read the reporting date and the tax rate carefully, and use only enacted or substantively enacted rates.
In MCQs, check whether the question asks for current tax, the amount payable after payments, or the temporary difference, as the answers differ.
For theory questions, quote the definitions in the standard's wording and then apply them to the facts given.

Practice questions from Ind AS 12 Income Taxes

Ind AS 12 Scope, Definitions and Current Tax in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Ind AS 12 Scope, Definitions and Current Tax: frequently asked questions

What is the difference between accounting profit and taxable profit in Ind AS 12?

Accounting profit is profit before tax expense as per Ind AS. Taxable profit is the profit determined under tax law on which tax is payable. They differ due to permanent differences and timing differences.

What is tax base with a simple example?

Tax base is the amount attributed to an asset or liability for tax purposes. Assume the economic benefits from a machine are taxable. If the machine costs ₹10,00,000 and tax law has allowed ₹4,00,000 so far, its tax base is ₹6,00,000. If the carrying amount is ₹7,00,000, the temporary difference is ₹1,00,000.

When is current tax recognised as an asset?

Current tax is an asset when the tax already paid for the current or prior periods exceeds the amount due. A benefit from a tax loss that can be carried back to recover tax of an earlier period is also recognised as an asset.

Which tax rate is used to measure current tax?

Use the rates and tax laws enacted or substantively enacted by the end of the reporting period. Rates only proposed are not used.