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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Corporate Tax Planning

Under section 206 of the Income-tax Act, 2025, in computing book profit, which of the following is REDUCED from the profit shown in the statement of profit and loss?

Deferred tax credited to the statement of profit and loss is reduced. Section 206(1)(c) adds back income-tax, transfers to reserves and dividends when debited, but allows a deduction for deferred tax if credited, so book profit is not inflated by it.

  1. AIncome-tax paid or payable debited to the statement of profit and loss
  2. BAmount carried to reserves debited to the statement of profit and loss
  3. CDeferred tax credited to the statement of profit and lossCorrect
  4. DDividends paid or proposed debited to the statement of profit and loss

Explanation

Deferred tax credited to the statement of profit and loss is a reduction under clause (1)(c)(xv). Income-tax, transfers to reserves and dividends debited are additions under clauses (i), (ii) and (v). Hence only deferred tax credited reduces book profit.

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