Library / Income-tax Act, 2025: The Professional's Master Guide

29. Income Tax and Ind AS

Companies preparing Ind AS financial statements must compute taxable income under the Act and ICDS, and book profit for MAT with Ind AS specific adjustments. The key differences are summarised below.

Area	Ind AS	Income tax
Revenue (Ind AS 115)	Five step model; variable consideration estimated; significant financing component separated	ICDS IV and III; revenue when reasonable certainty of collection; retention money recognised
Leases (Ind AS 116)	Lessee records a right of use asset and lease liability; depreciation and interest in P&L	Lease rent paid is deductible as expense; ROU depreciation and interest are added back; deferred tax arises
Financial instruments (Ind AS 109)	Fair value changes in P&L or OCI; effective interest method	Unrealised fair value gains on capital assets not taxed until transfer; stock-in-trade under ICDS VIII
Share based payments (Ind AS 102)	ESOP cost over vesting period	Deduction of ESOP discount allowed by courts, generally when options are exercised
Provisions (Ind AS 37)	Recognised when probable	Allowed only when reasonably certain (ICDS X), or on actual basis
Foreign exchange (Ind AS 21)	Monetary items restated	ICDS VI; similar for monetary items; capital asset related differences adjust cost in some cases (section 42)
Government grants (Ind AS 20)	Deferred and recognised over time	Taxable no later than the year of receipt, or reduce cost of asset (ICDS VII)
Business combinations (Ind AS 103)	Fair value accounting; goodwill	Tax values carried over in amalgamation; goodwill not depreciable

Illustration 105: Lease under Ind AS 116

A company leases an office for 5 years at Rs. 24 lakh a year. Under Ind AS 116, in Year 1 it books depreciation on the ROU asset of Rs. 20 lakh and interest on the lease liability of Rs. 8 lakh, a total charge of Rs. 28 lakh.

For tax, it adds back Rs. 28 lakh and deducts the rent paid of Rs. 24 lakh. The difference of Rs. 4 lakh reverses over the lease term. Deferred tax is recognised on the ROU asset and lease liability. TDS applies to the rent paid, not to the accounting entries.

29.1 MAT adjustments for Ind AS companies

Book profit is the profit before OCI, adjusted for OCI items that will never be reclassified to P&L (such as revaluation surplus is excluded, while remeasurement of defined benefit plans is included).
Transition amounts on first adoption of Ind AS are spread over five years.
Fair value gains on equity instruments designated through OCI are included when the instrument is transferred.

Chapter summary

• Ind AS figures are the starting point but ICDS and the Act decide taxable income.

• Leases, fair value changes, provisions and ESOPs commonly create differences.

• MAT for Ind AS companies has specific OCI and transition adjustments.

PART E: MERGERS, ACQUISITIONS AND BUSINESS REORGANISATION

Amalgamation, demerger, slump sale, share acquisitions and conversions

Restructuring can be tax-neutral or expensive depending on the route and the conditions. This part explains amalgamations, demergers, slump sales, conversions and share deals, with checklists for due diligence and worked examples on losses, cost and holding period.