## AS 22 — Accounting for Taxes on Income: Core Framework
### Why AS 22 Exists
A company's accounting profit (book profit) almost never equals its taxable profit (income under tax law). If only the tax actually paid is shown as the expense, the income statement is misleading — the expense doesn't match the income that earned it.
AS 22 requires recognising the full economic tax cost matched to accounting profit. The timing gap between book tax expense and cash tax paid is captured as Deferred Tax.
---
### Three Components of Tax Expense
| Component | What it is | Cash movement |
|---|---|---|
| Current Tax | Tax computed on taxable profit; actually payable to the government this year | Current year |
| Deferred Tax Liability (DTL) | Tax on income recognised in books now, but taxable later | Future year |
| Deferred Tax Asset (DTA) | Tax paid now on expense not yet allowed in books; creates a future saving | Future year |
Tax Expense (P&L) = Current Tax Expense + DTL Created − DTA Created
---
### Key Definitions
Deferred Tax: The tax effect of timing differences between accounting profit and taxable profit.
DTA (Deferred Tax Asset): Paid MORE tax this year than the book tax expense → future tax saving.
> Memory hook: "Aaj zyada tax, future mein kum → DTA"
DTL (Deferred Tax Liability): Paid LESS tax this year than the book tax expense → future tax payable.
> Memory hook: "Aaj kum tax, future mein zyada → DTL"
Current Tax: The amount of income tax determined to be payable in respect of taxable income for the period.
---
### P&L Presentation
```
Profit Before Tax: ₹XXX
Less: Tax Expense
Current Tax: ₹XXX
Add: Deferred Tax (DTL):₹XXX
Less: Deferred Tax (DTA):(₹XXX) Net: ₹XXX
Profit After Tax: ₹XXX
```
---
### Standard Journal Entry Patterns
DTA Created (paid more tax than book expense):
```
Income Tax Expense A/c Dr [book tax amount]
Deferred Tax Asset A/c Dr [DTA amount]
To Current Tax Payable [actual tax paid]
```
DTL Created (paid less tax than book expense):
```
Income Tax Expense A/c Dr [book tax amount]
To Current Tax Payable [actual tax paid]
To Deferred Tax Liability [DTL amount]
```
DTA Reversed in subsequent year:
```
Income Tax Expense A/c Dr [book tax amount]
To Current Tax Payable [lower tax paid]
To Deferred Tax Asset [DTA reversed]
```
DTL Reversed in subsequent year:
```
Deferred Tax Liability A/c Dr [DTL reversed]
Income Tax Expense A/c Dr [book tax amount]
To Current Tax Payable [higher tax paid]
```