Corporate Financial Reporting · Income Taxes (Ind AS 12)

Presentation and Disclosure Requirements under Ind AS 12

Updated 11 October 2026 · Fact-checked

Ind AS 12 presentation and disclosure rules tell you how to show tax in the financial statements. You show tax expense in the statement of profit and loss, offset tax assets and liabilities only where the standard allows, and disclose items such as a tax reconciliation (paragraph 81), unrecognised assets and tax on OCI.

Understand Presentation and Disclosure under Ind AS 12

Recognising and measuring tax is only half the job. Users also need to see how tax relates to profit, what is not recognised, and what could change in future. Presentation and disclosure rules do this.

Start with presentation. Ind AS 12 follows Ind AS 1, which requires the components of profit or loss and of other comprehensive income to be shown in one statement of profit and loss. The separate income statement option was removed, so the old rules for presenting tax in a separate income statement were deleted. Tax relating to OCI items is disclosed for each OCI component (paragraph 81(ab)).

Offsetting is the next idea. A tax asset and a tax liability are shown net only where the standard's offsetting conditions are met. In outline, the entity must have a legally enforceable right to set off current tax, and must intend to settle net or realise and settle together. For deferred tax, the balances must relate to tax levied by the same authority. These conditions are not in the extract supplied, so learn them from the full standard and state them without a paragraph number.

The key disclosure is the tax reconciliation. Paragraph 81(c) allows either of two forms: (i) tax expense against accounting profit multiplied by the applicable rate, or (ii) the average effective tax rate against the applicable rate. You also disclose the basis of the applicable rate. Paragraph 86 defines the average effective tax rate as tax expense divided by accounting profit.

The remaining disclosures give users a picture of what is hidden. These include tax charged to equity, changes in the rate, unrecognised deductible differences, losses and credits (with expiry dates), temporary differences on investments in subsidiaries, branches, associates and joint arrangements where no deferred tax liability is recognised, and tax contingencies.

Key rules to remember

Average effective tax rate: Average effective tax rate = Tax expense (income) ÷ Accounting profit; Defined in paragraph 86. Used in the second form of reconciliation under paragraph 81(c)(ii).
Numerical reconciliation (form i): Tax at applicable rate = Accounting profit × Applicable rate; then add or deduct reconciling items to reach tax expense; Paragraph 81(c)(i). Disclose the basis on which the applicable rate is computed.
Choice of applicable rate: Usually the domestic rate of the entity's country, with national and local taxes on a similar profit base aggregated; Paragraph 85. For multi-jurisdiction entities, aggregating separate reconciliations at each domestic rate may be more meaningful.
Typical reconciling items: Exempt revenue, non-deductible expenses, tax losses and foreign tax rates; Paragraph 84 lists these as factors that affect the tax expense and profit relationship.
Separate disclosures list: Paragraph 81(a) to (k); Includes tax on equity items, OCI tax, rate changes, unrecognised items, investment differences, deferred tax by type, discontinued operations, dividends and business combination effects.

How to solve Presentation and Disclosure under Ind AS 12 questions

For a theory question or a reconciliation problem, work in this order so you cover every mark-bearing point.

1Read the question and decide whether it asks about presentation, offsetting, reconciliation or general disclosure.
2For a reconciliation, compute accounting profit multiplied by the applicable rate first.
3List each reconciling item (non-deductible expenses, exempt income, different foreign rates) and its tax effect with the correct sign.
4Add and deduct the items to reach the tax expense, then check it equals current tax plus deferred tax.
5State the basis of the applicable rate, or compute the average effective tax rate as tax expense ÷ accounting profit if form (ii) is asked.
6For theory, list the paragraph 81 disclosures that fit the facts given, and link each to why users need it.
7For offsetting, state the conditions and then apply them to the facts given before concluding.

Quickest way: Rate-first reconciliation

When to use it: Use this when you are given profit, rates and a few non-deductible or exempt items and must reconcile to tax expense.

Write profit × domestic rate as the first line.
Tax-effect each adjustment at the rate of the jurisdiction it belongs to.
Show increases in tax as positive and decreases as brackets.
Total the lines and match to the tax expense given or computed.
If asked for the effective rate, divide the tax expense by accounting profit.

Common mistakes in Presentation and Disclosure under Ind AS 12

Applying the domestic rate to the whole profit and ignoring foreign profit taxed at a lower rate.
Students treat the domestic rate as the only rate.
Fix: Reconcile at the domestic rate first, then show the effect of the different rate in the other country as a separate line.
Putting the tax effect of non-deductible expenses as a deduction.
Confusion between reducing taxable profit and increasing it.
Fix: Non-deductible expenses raise taxable profit, so the tax effect is added to the reconciliation.
Calculating the average effective tax rate on taxable profit.
Mixing up taxable profit and accounting profit.
Fix: Use the definition in paragraph 86: tax expense divided by accounting profit.
Offsetting deferred tax assets and liabilities simply because both are present.
Treating offsetting as automatic.
Fix: Check the offsetting conditions, including the legal right and the same tax authority, before netting.
Omitting disclosure of unrecognised deferred tax assets.
Students only remember disclosures about recognised balances.
Fix: Remember paragraph 81(e): amount and expiry date of deductible differences, losses and credits with no deferred tax asset recognised.
Forgetting tax relating to OCI components.
Tax is seen as only a profit or loss item.
Fix: Disclose the income tax on each OCI component separately under paragraph 81(ab).

Worked examples

Example 1

An entity has accounting profit of ₹3,000 in 2 jurisdictions: ₹1,500 in country A (rate 30%) and ₹1,500 in country B (rate 20%). In country A, expenses of ₹100 are not deductible. Prepare the reconciliation to the domestic rate and find the tax expense.

Show the solution

Tax at the domestic rate of 30% on ₹3,000 = ₹900.
Non-deductible expenses: ₹100 × 30% = ₹30 added.
Lower rate in country B: ₹1,500 × (30% − 20%) = ₹150 deducted.
Tax expense = 900 + 30 − 150 = ₹780.
Check: country A tax = (1,500 + 100) × 30% = ₹480; country B tax = 1,500 × 20% = ₹300; total = ₹780.

Answer: Tax at 30%: ₹900; add non-deductible expenses: ₹30; less effect of lower rate in country B: (₹150); tax expense ₹780.

Example 2

Using the data above, compute the average effective tax rate and state the other form of reconciliation permitted.

Show the solution

Average effective tax rate = tax expense ÷ accounting profit.
= 780 ÷ 3,000 = 0.26, which is 26%.
The applicable rate used is 30%, so the reconciliation moves from 30% to 26%.
Items: non-deductible expenses add 1% (30 ÷ 3,000); lower rate in B reduces 5% (150 ÷ 3,000).
Check: 30% + 1% − 5% = 26%.

Answer: The average effective tax rate is 26%. Form (ii) of paragraph 81(c) reconciles it to the 30% applicable rate, with +1% for non-deductible expenses and −5% for the lower foreign rate, and the basis of the applicable rate must be disclosed.

Exam tips

Learn the paragraph 81 list as a checklist, since theory questions often ask you to list disclosures.
In reconciliation problems, show each line with its sign and prove the total against current plus deferred tax.
Always give the two forms of reconciliation and say that either or both may be used.
In offsetting answers, state the conditions first and then apply them to the case facts.
Link each disclosure to its purpose: users understand the unusual relationship between tax and profit and future factors.

Practice questions from Income Taxes (Ind AS 12)

Presentation and Disclosure under Ind AS 12 in other exams

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

Presentation and Disclosure under Ind AS 12: frequently asked questions

What are the two forms of tax reconciliation under Ind AS 12?

Paragraph 81(c) allows a numerical reconciliation of tax expense to accounting profit multiplied by the applicable rate, or a reconciliation of the average effective tax rate to the applicable rate. You may give either or both. In both cases you must disclose the basis on which the applicable rate is computed.

How is the average effective tax rate calculated?

It is tax expense (income) divided by accounting profit, as defined in paragraph 86. For example, tax expense of ₹780 on profit of ₹3,000 gives 26%.

Which tax rate should I use in the reconciliation?

Use the rate that gives users the most meaningful information. Often this is the domestic rate, combining national and local taxes on a similar profit base. An entity operating in several jurisdictions may find it more meaningful to aggregate separate reconciliations at each domestic rate (paragraph 85).

Are tax contingencies disclosed under Ind AS 12?

Yes. Paragraph 88 requires tax-related contingent liabilities and assets to be disclosed under Ind AS 37, for example from disputes with tax authorities. Significant effects of tax rate or law changes enacted after the reporting period are also disclosed.