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CA Intermediate · Advanced Accounting · AS 22 Accounting for Taxes on Income

Meenakshi Textiles Ltd. has accounting profit of ₹12,00,000 for the year. Its books include ₹1,50,000 of penalty paid to a statutory authority for violation of law, which is disallowed under tax law and is never allowed in any year. The tax rate is 25%. Ignoring other items, what is the tax expense (current tax) for the year under AS 22?

Current tax is ₹3,37,500. The penalty is a permanent difference that is never allowed for tax, so it is added back to accounting profit, giving taxable income of ₹13,50,000, taxed at 25%. No deferred tax arises on permanent differences.

  1. A₹3,00,000
  2. B₹3,37,500Correct
  3. C₹2,62,500
  4. D₹3,75,000

Explanation

The penalty is a permanent difference, so it creates no deferred tax. Taxable income = 12,00,000 + 1,50,000 = 13,50,000. Current tax at 25% = ₹3,37,500. Option A ignores the add-back, while option C wrongly deducts the penalty.

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