Deferred Tax Assets (DTAs) are recognized under both the previous Indian Accounting Standards (AS) and the current Indian Accounting Standards (Ind AS), but there are some differences in the criteria for their recognition.
Under AS, DTAs were recognized only to the extent that there was virtual certainty of sufficient future taxable income against which the deferred tax assets could be realized. This virtual certainty threshold was relatively high, resulting in limited recognition of DTAs.
On the other hand, Ind AS has a different approach to DTA recognition. According to Ind AS 12, Income Taxes, DTAs are recognized when it is probable that there will be taxable profit against which the deferred tax assets can be utilized. The threshold of “probable” is lower than “virtual certainty,” which allows for more recognition of DTAs. This change in criteria is intended to reflect a more realistic assessment of the future profitability of the entity.
Additionally, Ind AS provides more guidance on how to measure DTAs, taking into account the future tax consequences of both taxable and deductible temporary differences, the utilization of tax losses, and the impact of tax planning strategies.
