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CA Final · Financial Reporting · Ind AS 12 Income Taxes

Narmada Infra Ltd has a history of losses. At 31 March 2025 it has unused tax losses of ₹40 lakh, which can be carried forward. It also has taxable temporary differences of ₹30 lakh, which will reverse in the year the losses can still be used. The company has no other probable future taxable profits and no convincing other evidence. The tax rate is 25%. What amount of deferred tax asset on the unused tax losses may be recognised?

Only ₹7,50,000 may be recognised. With a history of losses and no other convincing evidence, the asset is supported only by taxable temporary differences of ₹30 lakh that will reverse in time. At 25% this gives ₹7.5 lakh, not the full ₹10 lakh.

  1. A₹10,00,000
  2. B₹7,50,000Correct
  3. C₹2,50,000
  4. DNil

Explanation

A DTA for unused losses is recognised only to the extent that it is probable that future taxable profit will be available. With a loss history and no other evidence, the only support is the reversal of the taxable temporary differences. That is 30 lakh × 25% = ₹7.5 lakh. The full 40 lakh × 25% = ₹10 lakh is not supported. ₹2.5 lakh is the unrecognised part, not the recognised part.

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