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Union of India - Section
Section 52A in The Companies (Indian Accounting Standards) Rules, 2015
52A. In some jurisdictions, income taxes are payable at a higher or lower rate if part or all of the net profit or retained earnings is paid out as a dividend to shareholders of the entity. In some other jurisdictions, income taxes may be refundable or payable if part or all of the net profit or retained earnings is paid out as a dividend to shareholders of the entity. In these circumstances, current and deferred tax assets and liabilities are measured at the tax rate applicable to undistributed profits.
[***] [Omitted '52B' by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).].| [Example illustrating paragraphs 52A and 57A] [Substituted 'Example illustrating paragraphs 52A and 52B' by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).] |
| The following exampledeals with the measurement of current and deferred tax assets andliabilities for an entity in a jurisdiction where income taxesare payable at a higher rate on undistributed profits (50%) withan amount being refundable when profits are distributed. The taxrate on distributed profits is 35%. At the end of the reportingperiod, 31 December 20X1, the entity does not recognise aliability for dividends proposed or declared after the reportingperiod. As a result, no dividends are recognized in the year20X1. Taxable income for 20X1 is Rs.. 100,000. The net taxabletemporary difference for the year 20X1 is Rs. 40,000.The entityrecognises a current tax liability and a current income taxexpense of Rs. 50,000. No asset is recognized for the amountpotentially recoverable as a result of future dividends. Theentity also recognises a deferred tax liability and deferred taxexpense of Rs. 20,000 (Rs.. 40,000 at 50%) representing theincome taxes that the entity will pay when it recovers or settlesthe carrying amounts of its assets and liabilities based on thetax rate applicable to undistributed profits.Subsequently, on 15March 20X2 the entity recognises dividends of Rs.. 10,000 fromprevious operating profits as a liability.On 15 March 20X2, the entity recognises therecovery of income taxes of Rs. 1,500 (15% of the dividendsrecognized as a liability) as a current tax asset and as areduction of current income tax expense for 20X2. |