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Exposure Draft of Recognition of Deferred Tax Assets for Unrealised Losses (Amendments in Ind AS 12, Income taxes) (January 2017).
January, 19th 2017
                                                      ED/Ind AS/2017/01



                        Exposure Draft



Recognition of Deferred Tax Assets for Unrealised Losses
       Amendments to Ind AS 12, Income Taxes




        (Last date for the comments: 20th February, 2017)




                         Issued by
                 Accounting Standards Board
      The Institute of Chartered Accountants of India


                                1
                                                                             ED/Ind AS/2017/01


                                      Exposure Draft

  Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to
                          Ind AS 12, Income Taxes)
Following is the Exposure Draft of changes proposed in Ind AS 12, Income Taxes, issued by the
Accounting Standards Board of the Institute of Chartered Accountants of India, for comments.

The Board invites comments on any aspect of this Exposure Draft. Comments are most helpful if
they indicate the specific paragraph or group of paragraphs to which they relate, contain a clear
rationale and, where applicable, provide a suggestion for alternative wording.

How to Comment

Comments should be submitted using one of the following methods, so as to receive not later
than 20th February, 2017:

   1. Electronically:        Click on the below mentioned option to submit a comment letter or
                             visit at the following link (Preferred method):
                             http://www.icai.org/comments/asb/

   2. Email:                 Comments can be sent at commentsasb@icai.in

   3. Postal:                Secretary, Accounting Standards Board,
                             The Institute of Chartered Accountants of India,
                             ICAI Bhawan, Post Box No. 7100,
                             Indraprastha Marg, New Delhi ­ 110 002

Further clarifications on any aspect of this Exposure Draft may be sought by e-mail to
asb@icai.in.




                                               2
                                                                              ED/Ind AS/2017/01


Amendments to Ind AS 12, Income Taxes
Paragraph 29 is amended and paragraphs 27A, 29A and 98G are added. An example following
paragraph 26 is also added. Paragraphs 24, 26(d), 27 and 28 have not been amended but are
included for ease of reference.

     Deductible temporary differences
24     A deferred tax asset shall be recognised for all deductible temporary differences to
       the extent that it is probable that taxable profit will be available against which the
       deductible temporary difference can be utilised, unless the deferred tax asset arises
       from the initial recognition of an asset or liability in a transaction that:

       (a)   is not a business combination; and

       (b)   at the time of the transaction, affects neither accounting profit nor taxable
             profit (tax loss).

       However, for deductible temporary differences associated with investments in
       subsidiaries, branches and associates, and interests in joint arrangements, a
       deferred tax asset shall be recognised in accordance with paragraph 44.

     ...

26     The following are examples of deductible temporary differences that result in deferred
       tax assets:

       (a)   ...

       (d)   certain assets may be carried at fair value, or may be revalued, without an
             equivalent adjustment being made for tax purposes (see paragraph 20). A deductible
             temporary difference arises if the tax base of the asset exceeds its carrying amount.

Example illustrating paragraph 26(d)

Identification of a deductible temporary difference at the end of Year 2:

Entity A purchases for Rs. 1,000, at the beginning of Year 1, a debt instrument with a nominal
value of Rs. 1,000 payable on maturity in 5 years with an interest rate of 2% payable at the end
of each year. The effective interest rate is 2%. The debt instrument is measured at fair value.






At the end of Year 2, the fair value of the debt instrument has decreased to Rs. 918 as a result of
an increase in market interest rates to 5%. It is probable that Entity A will collect all the
contractual cash flows if it continues to hold the debt instrument.



                                                3
                                                                               ED/Ind AS/2017/01


Any gains (losses) on the debt instrument are taxable (deductible) only when realised. The gains
(losses) arising on the sale or maturity of the debt instrument are calculated for tax purposes as
the difference between the amount collected and the original cost of the debt instrument.

Accordingly, the tax base of the debt instrument is its original cost.

The difference between the carrying amount of the debt instrument in Entity A's balance sheet
of Rs. 918 and its tax base of Rs. 1,000 gives rise to a deductible temporary difference of Rs. 82
at the end of Year 2 (see paragraphs 20 and 26(d)), irrespective of whether Entity A expects to
recover the carrying amount of the debt instrument by sale or by use, i.e. by holding it and
collecting contractual cash flows, or a combination of both.

This is because deductible temporary differences are differences between the carrying amount
of an asset or liability in the balance sheet and its tax base that will result in amounts that are
deductible in determining taxable profit (tax loss) of future periods, when the carrying amount
of the asset or liability is recovered or settled (see paragraph 5). Entity A obtains a deduction
equivalent to the tax base of the asset of Rs. 1,000 in determining taxable profit (tax loss) either
on sale or on maturity.


27    The reversal of deductible temporary differences results in deductions in determining
      taxable profits of future periods. However, economic benefits in the form of reductions in
      tax payments will flow to the entity only if it earns sufficient taxable profits against
      which the deductions can be offset. Therefore, an entity recognises deferred tax assets
      only when it is probable that taxable profits will be available against which the deductible
      temporary differences can be utilised.

27A   When an entity assesses whether taxable profits will be available against which it can
      utilise a deductible temporary difference, it considers whether tax law restricts the
      sources of taxable profits against which it may make deductions on the reversal of that
      deductible temporary difference. If tax law imposes no such restrictions, an entity
      assesses a deductible temporary difference in combination with all of its other deductible
      temporary differences. However, if tax law restricts the utilisation of losses to deduction
      against income of a specific type, a deductible temporary difference is assessed in
      combination only with other deductible temporary differences of the appropriate type.

28    It is probable that taxable profit will be available against which a deductible temporary
      difference can be utilised when there are sufficient taxable temporary differences relating
      to the same taxation authority and the same taxable entity which are expected to reverse:

      (a)     in the same period as the expected reversal of the deductible temporary
              difference; or

      (b)     in periods into which a tax loss arising from the deferred tax asset can be carried
              back or forward.



                                                 4
                                                                                ED/Ind AS/2017/01


       In such circumstances, the deferred tax asset is recognised in the period in which the
       deductible temporary differences arise.
29     When there are insufficient taxable temporary differences relating to the same taxation
       authority and the same taxable entity, the deferred tax asset is recognised to the extent
       that:

       (a)   it is probable that the entity will have sufficient taxable profit relating to the same
             taxation authority and the same taxable entity in the same period as the reversal of
             the deductible temporary difference (or in the periods into which a tax loss arising
             from the deferred tax asset can be carried back or forward). In evaluating whether it
             will have sufficient taxable profit in future periods, an entity: ignores taxable
             amounts arising from deductible temporary differences that are expected to
             originate in future periods, because the deferred tax asset arising from these
             deductible temporary differences will itself require future taxable profit in order to
             be utilised; or

             (i)    compares the deductible temporary differences with future taxable profit
                    that excludes tax deductions resulting from the reversal of those deductible
                    temporary differences. This comparison shows the extent to which the future
                    taxable profit is sufficient for the entity to deduct the amounts resulting from
                    the reversal of those deductible temporary differences.

             (ii)   ignores taxable amounts arising from deductible temporary differences that
                    are expected to originate in future periods, because the deferred tax asset
                    arising from these deductible temporary differences will itself require future
                    taxable profit in order to be utilised; or

       (b)   tax planning opportunities are available to the entity that will create taxable profit in
             appropriate periods.

29A    The estimate of probable future taxable profit may include the recovery of some of an
       entity's assets for more than their carrying amount if there is sufficient evidence that it is
       probable that the entity will achieve this. For example, when an asset is measured at fair
       value, the entity shall consider whether there is sufficient evidence to conclude that it is
       probable that the entity will recover the asset for more than its carrying amount. This may
       be the case, for example, when an entity expects to hold a fixed-rate debt instrument and
       collect the contractual cash flows.

Effective date

89-98F [Refer Appendix 1]

98G    Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to Ind AS 12)
       amended paragraph 29 and added paragraphs 27A, 29A and 98G and the example
       following paragraph 26. An entity shall apply those amendments for annual periods



                                                 5
                                                                                          ED/Ind AS/2017/01


        beginning on or after ----1. An entity shall apply those amendments retrospectively in
        accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and
        Errors. However, on initial application of the amendment, the change in the opening
        equity of the earliest comparative period may be recognised in opening retained earnings
        (or in another component of equity, as appropriate), without allocating the change
        between opening retained earnings and other components of equity. If an entity applies
        this relief, it shall disclose that fact.








Appendix 1
8.      Paragraphs 89-98F in IAS 12 has not been included in Ind AS 12 as these paragraphs
        relate to Effective Date. However, in order to maintain consistency with paragraph
        numbers of IAS 12, the paragraph numbers are retained in Ind AS 12.




1
 Since these amendments to Ind AS will be notified by the Ministry of Corporate Affairs (MCA), the effective date
of applicability of these amendments will be as may be notified by the MCA.

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