Disallowing Depreciation as per Companies Act

Q1

ABC PRIVATE LIMITED

PROFIT AND LOSS A/c

Particulars Amt
Sales 500000
Less
Purchase 300000
Gp 200000
Less
Office Exp. 60000
Intrerest 50000
Depreciation 60000
Profit 30000
Tax @ 30% ?
Profit after tax ?

Calculate TAX & PAT

Q2
Suppose Depreciation as per Companies Act is 60000 and Income Tax Act 70000
Income Tax Rate=30%
Calculate Tax?

DIRECT METHOD

Particulars Amt
INDIRECT METHOD

Particulars Amt

Normally in Companies,Indirect Method is more followed

Calculate PBT and PAT also in above case

Particulars Amt
 Deferred Tax Basics

Q1
Asset Value 100000

Depreciation Rate
Income Tax Act 15%
Companies Act 10%

(a) Calculate Depreciation for next 40 years using WDV Method

(b) Which Depreciation Amount is more,as per Companies Act or Income Tax Act ?

(c) Assume Profit every year to be 50 lacs.What is Taxable Proft and Tax?

(d) What is tax benefit every year because of differene in dep?

ANSWER

Dep as per Income Tax Act Dep as per Companies Act

Opening Closing Opening Dep Closing

Year Value Dep Rate Dep Wdv Value Rate Dep Wdv
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
 Difference
In Tax
Taxable Depreciatio Benefit/ DTA
Profit Profit Tax n Loss /DTL
Difference between DTA and DTL

DTA (Deferred Tax Asset)

If In The Current Year We Have To Pay More Tax But In

Future We Will Get Tax Benefit We Create Dta
JOURNAL ENTRY
DTA (Non Current Assets)….Dr
To P&L
Examples
1 Depreciation as Per Income Tax is less than Companies
Act

2 Section 40(A)
30% Of Expense On Which Tds Not Deposited Allowed In
Year When Actually Deposited)
3. Section 43B

Interest On Bank Loan/Bonus/Pf Not Paid Till Return

Filing Date 30 Sept,If Paid After 30 Sept,Allowed Next
Year

Dta (Deferred Tax Asset)

If In The Current Year We Have To Pay More Tax But In Fu
Journal Entry
Dta (Non Current Assets)….Dr
To P&L
Examples
1 Depreciation As Per Income Tax Is Less Than Companies

2 Section 40(A)
30% Of Expense On Which Tds Not Deposited Allowed In Y
3. Section 43B
Interest On Bank Loan/Bonus/Pf Not Paid Till Return Filing

Dta (Deferred Tax Asset)

If In The Current Year We Have To Pay More Tax But In Fu
DTL (Deferred Tax Liability)

If In The Current Year We Have To Pay Less Tax As

Computed By Co Act Then We Create Dtl

P& L Dr
To DTL (Non Current Liability)

Depreciation as Per Income Tax is more than

Companies Act

Dtl (Deferred Tax Liability)

If In The Current Year We Have To Pay Less Tax As Computed By Co Act Then We Create Dtl

P& L Dr
To Dtl (Non Current Liability)

Depreciation As Per Income Tax Is More Than Companies Act

Dtl (Deferred Tax Liability)

If In The Current Year We Have To Pay Less Tax As Computed By Co Act Then We Create Dtl
Permanent Difference And Timing Differnce

There are 2 types of differences between Profit as per books(tally) and Taxable Profit

Timing Difference (TD)

Permanent Difference(PD)

Timing Difference
These adjust in future
We make DTA/DTL for the same
Example
Difference in Depreciation rates as per Compan
2 Section 40(A)

30% Of Expense On Which Tds Not Deposited

Allowed In Year When Actually Deposited)
3. Section 43B

Interest On Bank Loan/Bonus/Pf Not Paid Till

Return Filing Date 30 Sept,If Paid After 30
Sept,Allowed Next Year
ween Profit as per books(tally) and Taxable Profit

Permanent Difference
These do no adjust in future
We do not make DTS/DTL
Example
1. Illegal Expense Disallowed
2. Personal Expenses Disallowed
Deferred tax computation format
PARTICULARS AMT
Dep as per Companies Act XX
Dep as per Income Tax Act XX
Difference in depreciation XX
Add/Less
Other Timing Differences

Total Timing Differences

Tax Rate
Tax benefit /(loss) XX
DTL/DTA XX
INCOME TAX COMPUTATION FORMAT FOR COMPANIES

It is prepared taking into account different cases of expense disallowed (Learn more)

PARTICULARS AMT
Profit as per tally xx
Add
Exp Disallowed like
Depreciation As Per Companies Act xx
30% Of Expense On Which Tds Not Deducted xx
Personal Exp Charged To P& L xx
Illegal Exp Booked In P & L xx
Any Cash Payment > 20000 Of Any Expense Per Day xx
Any Loan Taken Or Repaid > 20000 In Cash xx
Income Tax/Wealthtax/Int On Tax/Penalty On Tax Shown As Exp/Deferred Tax xx
Section 43 B Expenses(Interest On Bank Loan/Bonus/Pf Not Paid Till Return Filing Date 30 Sept) xx
Any Unascertained Provisons (Provision Made Without Any Basis E.G Prov For Bad Debts) xx

Less
Exp Allowed Like
Depreciation As Per Income Tax xx
Exp Of Previous Year On Which Tds Deposited This Year xx
Section 43 B Exp Of Previous Year Paid This Year xx

Taxable profit xx
Tax xx
Surcharge xx
Total xx
Cess xx
Tax+Cess xx