Financial Reporting · Ind AS 12 Income Taxes

Ind AS 12 Presentation, Offsetting and Disclosures

Updated 5 October 2026 · Fact-checked

Ind AS 12 presentation rules decide how tax balances and tax expense appear in the financial statements. Current tax assets and liabilities, and deferred tax assets and liabilities, are offset only if a legally enforceable right and the required intention or tax-authority conditions exist. To solve questions, test each offset condition, then present tax expense and reconcile it to accounting profit.

Understand Presentation, Offsetting and Disclosures

Ind AS 12 first tells you how to recognise and measure tax. This topic tells you how to show it. Tax appears in three places: the balance sheet (current and deferred tax balances), the statement of profit and loss (tax expense), and the notes (reconciliations and disclosures).

On the balance sheet, current tax and deferred tax are separate items. Ind AS 1 prohibits classifying deferred tax assets and liabilities as current, and Schedule III (Division II) shows deferred tax assets (net) and deferred tax liabilities (net) as separate non-current lines.

Offsetting is a separate point from classification. A balance is netted only where the Ind AS 12 offset conditions are met.

Offsetting means showing only the net amount. It is allowed only when the entity can really settle net. For current tax, you offset only if the entity (a) has a legally enforceable right to set off the recognised amounts and (b) intends to settle net or to realise the asset and settle the liability at the same time.

For deferred tax, you offset only if the entity has a legally enforceable right to set off current tax assets against current tax liabilities, and the deferred balances relate to income taxes levied by the same taxation authority on either the same taxable entity, or different taxable entities that intend to settle current tax net or realise and settle at the same time in each future period in which significant deferred tax is expected to reverse. Two different tax authorities, or two group entities filing separately without such intention, mean no offset.

In the notes, you disclose the major components of tax expense, tax relating to items charged or credited directly to equity or OCI, and an explanation of the relationship between tax expense and accounting profit. You also disclose unrecognised deductible temporary differences, unused tax losses and credits, and deferred tax balances by type of temporary difference. Expect case questions where you must decide offset, reconcile, or pick the right disclosure.

Key rules to remember

Current tax offset test: Offset only if: legally enforceable right to set off AND intention to settle net (or realise asset and settle liability simultaneously); Both conditions must be met. Missing either one means present gross.
Deferred tax offset test: Offset only if: legally enforceable right to set off current tax assets against current tax liabilities AND the deferred balances relate to income taxes levied by the same authority on (i) the same taxable entity, or (ii) different taxable entities that intend to settle current tax net, or realise and settle simultaneously, in each future period in which significant deferred tax is expected to be settled or recovered; Different tax authorities means no offset. Different entities, such as group entities, need the intention condition in each future period in which significant deferred tax is expected to be settled or recovered.
Tax expense (income): Tax expense = Current tax + Deferred tax expense (less deferred tax income); Includes only the tax recognised in profit or loss. Tax on OCI or equity items is shown with those items.
Rate reconciliation, method 1: Accounting profit × applicable tax rate = Notional tax; Notional tax ± reconciling items = Tax expense; Numerical reconciliation between tax expense and the product of accounting profit and applicable tax rate.
Rate reconciliation, method 2: Applicable tax rate ± effect of reconciling items = Effective tax rate (Tax expense ÷ Accounting profit); Numerical reconciliation between average effective tax rate and applicable tax rate. Disclose the basis of the applicable rate.
Effective tax rate: Effective tax rate = Tax expense ÷ Accounting profit before tax × 100; Use total tax expense in profit or loss, not just current tax.

How to solve Presentation, Offsetting and Disclosures questions

Use this order for any presentation, offsetting or disclosure question. It keeps you inside the standard and gives the examiner visible, markable points.

1Identify what is asked: offset decision, tax expense presentation, rate reconciliation, or list of disclosures.
2For offsetting, list the balances and identify the tax authority and taxable entity for each one.
3Apply the current tax test first: legal right to set off and intention to settle net. Then apply the deferred tax test: right to set off current tax, same authority, same entity or net-settlement intention.
4State the conclusion for each pair: offset the net figure or present gross, and show the resulting balance sheet amounts.
5For tax expense, add current tax and deferred tax charged to profit or loss. Move tax on OCI or equity items to those items.
6For reconciliation, compute notional tax at the applicable rate, then adjust for each permanent difference, rate change, unrecognised item or prior-year adjustment, and arrive at tax expense.
7Write the disclosures in a short list: components of tax expense, items in OCI or equity, reconciliation, unrecognised items, and deferred tax by type.
8Close with a one-line conclusion giving the final figures or the offset decision.

Quickest way: Two-gate offset check and reconciliation ladder

When to use it: Use it when a case gives several tax balances with authority details, or asks for a tax rate reconciliation under time pressure.

Gate 1: is there a legal right to set off current tax assets against current tax liabilities? If no, do not offset current tax and do not offset deferred tax. Present both gross.
Gate 2, current tax: is there an intention to settle net or to realise the asset and settle the liability simultaneously?
Gate 2, deferred tax: do the balances relate to income taxes levied by the same authority, on either the same entity, or different entities that intend to settle current tax net or simultaneously in each future period in which significant deferred tax is expected to be settled or recovered?
Keep the two tests separate. If a category passes both gates, show its net amount. If it fails either gate, show that category gross.
For reconciliation, start at profit × rate, then write each adjustment as non-deductible expense × rate (add) or exempt income × rate (subtract).
Add up and check that the result equals current tax plus deferred tax in profit or loss.

Common mistakes in Presentation, Offsetting and Disclosures

Offsetting current tax and deferred tax balances against each other.
Both are tax balances, so students assume they can be netted.
Fix: Offset current with current and deferred with deferred. Deferred offset is tested separately, and the two categories stay separate on the balance sheet.
Offsetting deferred tax assets and liabilities only because they relate to the same entity.
Students remember the same-entity condition and forget the legal right to set off current tax.
Fix: Always check the legal right to set off current tax assets against current tax liabilities along with the same-authority condition.
Offsetting balances relating to different tax authorities.
Students treat all income taxes as one pool.
Fix: Different taxation authorities mean separate presentation. Check authority first in every case.
Showing tax on OCI items inside profit or loss tax expense.
Students treat all tax as one expense line.
Fix: Tax on items recognised in OCI or directly in equity is recognised with those items. Disclose it separately.
Doing the rate reconciliation on current tax instead of total tax expense.
Students take the tax payable figure as the target.
Fix: Reconcile total tax expense (current plus deferred) in profit or loss to profit before tax times the applicable rate.
Presenting deferred tax as current or leaving out unrecognised item disclosures.
Students focus on the numbers and forget classification and notes.
Fix: Present deferred tax as non-current and add disclosure of unrecognised deductible differences, losses and credits.

Worked examples

Example 1

Alpha Ltd files its return with one tax authority. At the year end it has a current tax liability of ₹40,00,000 and an advance tax and TDS asset of ₹35,00,000 for the same tax year. Alpha has a legally enforceable right to set off current tax assets and current tax liabilities, and it will pay only the balance. It also has deferred tax assets of ₹12,00,000 and deferred tax liabilities of ₹30,00,000. All of these relate to income taxes levied by the same tax authority on the same entity. How should Alpha present these balances?

Show the solution

Current tax: Alpha has a legally enforceable right to set off and intends to settle net. Both conditions are met, so offset.
Net current tax liability = ₹40,00,000 − ₹35,00,000 = ₹5,00,000.
Deferred tax: Alpha has a legally enforceable right to set off current tax assets against current tax liabilities, as stated in the problem. The deferred balances relate to income taxes levied by the same authority on the same entity. Offset is allowed.
Net deferred tax liability = ₹30,00,000 − ₹12,00,000 = ₹18,00,000.
Current tax and deferred tax are not netted against each other. Deferred tax is shown as non-current.

Answer: Present a net current tax liability of ₹5,00,000 and a net non-current deferred tax liability of ₹18,00,000.

Example 2

Beta Ltd has accounting profit before tax of ₹2,00,00,000 and an applicable tax rate of 25%. Its books include non-deductible penalties of ₹8,00,000 and exempt income of ₹20,00,000. Ignore temporary differences. Prepare the tax rate reconciliation and state the effective tax rate.

Show the solution

Notional tax = ₹2,00,00,000 × 25% = ₹50,00,000.
Non-deductible penalties increase tax: ₹8,00,000 × 25% = ₹2,00,000.
Exempt income reduces tax: ₹20,00,000 × 25% = ₹5,00,000.
Tax expense = ₹50,00,000 + ₹2,00,000 − ₹5,00,000 = ₹47,00,000.
Here tax expense equals current tax only because temporary differences are ignored. If there were temporary differences, deferred tax would be added to current tax to get the total tax expense that you reconcile.
Effective tax rate = ₹47,00,000 ÷ ₹2,00,00,000 × 100 = 23.5%.
Check with rate method: 25% + (2,00,000 ÷ 2,00,00,000 = 1%) − (5,00,000 ÷ 2,00,00,000 = 2.5%) = 23.5%.

Answer: Tax expense is ₹47,00,000 and the effective tax rate is 23.5%. Reconciliation: notional tax ₹50,00,000 plus ₹2,00,000 for penalties less ₹5,00,000 for exempt income. Tax expense equals current tax here only because temporary differences are ignored.

Exam tips

In offsetting cases, write the legal right test, then the intention or authority test, then the conclusion. Examiners mark each condition.
If a case says balances relate to different tax authorities, conclude no offset and give the gross figures straight away.
In reconciliation questions, show the notional tax line first and tabulate each adjustment at the tax rate. Part marks come from the working.
For disclosure questions, group your points under tax expense components, OCI and equity items, reconciliation, and unrecognised items, so you do not miss a heading.
Check the sign: non-deductible expenses raise tax, exempt income lowers it.

Practice questions from Ind AS 12 Income Taxes

Presentation, Offsetting and Disclosures: frequently asked questions

When can deferred tax assets and liabilities be offset under Ind AS 12?

Only when the entity has a legally enforceable right to set off current tax assets against current tax liabilities, and the balances relate to income taxes levied by the same taxation authority. Those taxes must be levied on the same taxable entity, or on different taxable entities that intend to settle current tax net, or realise and settle simultaneously, in each future period in which significant deferred tax is expected to be settled or recovered.

Can current tax and deferred tax be netted together?

No. Current tax assets and liabilities are offset against each other, and deferred tax assets and liabilities are offset against each other. The two categories are shown separately.

What are the two ways to present the tax rate reconciliation?

One reconciles tax expense to accounting profit multiplied by the applicable tax rate. The other reconciles the average effective tax rate to the applicable tax rate. Either way, you also disclose the basis on which the applicable rate is computed.

Where does tax on OCI items go?

Tax on items recognised in OCI is recognised in OCI, and tax on items recognised directly in equity goes to equity. You disclose the amount of tax relating to each component of OCI separately, so it does not enter the profit or loss tax expense.