An NCLT scheme creates temporary differences between the carrying amounts of the assets and liabilities in the financial statements and their tax bases. Ind AS 12 requires the company to recognise the deferred tax assets and liabilities for these temporary differences, and the recognition is a critical post-scheme accounting exercise.
The Temporary Differences
The temporary differences arise from the fair value adjustments in a business combination, the depreciation and amortisation of the assets, the provisions for the employee benefits, and the carry forward of the losses. The deferred tax liability is recognised for the taxable temporary differences, and the deferred tax asset is recognised for the deductible temporary differences and the unused tax losses, to the extent that it is probable that the taxable profit will be available.
The Business Combination
In a business combination, the deferred tax assets and liabilities are recognised and measured in accordance with Ind AS 12, and they are included in the identifiable assets acquired and the liabilities assumed. The deferred tax is not recognised for the goodwill, and it is not discounted.
The NCLT Scheme
The scheme may prescribe a specific tax treatment, and the company must follow the scheme’s terms where they are consistent with the accounting standards. The company must disclose the deferred tax in its financial statements, and it must assess the recoverability of the deferred tax asset at each reporting date.
A technically sound post-scheme accounting recognises the deferred tax on the temporary differences, assesses the recoverability of the deferred tax asset, and discloses the position in the financial statements.
Call to Action
Anuj Desai & Associates advises companies on the deferred tax implications of an NCLT scheme—from the Ind AS 12 recognition and the business combination adjustments to the recoverability assessment and the disclosure. If your scheme involves significant tax attributes, we can help you structure the accounting.
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