Taxation Help Needed !

[Major]

What is Deferred Tax Reserve as used in NBFC Rules? what is the difference between Deferred Tax Liability and Deferred Tax Reserve? are both of these terms same?

Please Explain!

Thanks and Regards.

[faisal_desperado]

Dear Major,

There is a slenderly differentiation in between these two terms; Deferred Tax Reserve, although related to the deferred tax liablity but they may not be complected with each other in any way.

Deferred Tax Liablity arises when there is a differentiation in between Carrying Value of an asset with its Tax base, i.e. Carrying value of an asset is more than its Tax Base, on the other hand, as per Circular No. 16 of 1999 dated September 09, 1999 regarding compliance with the IAS – 12 (Revised), Leasing companies were allowed to fully provide for the un-recognized deferred tax liability as at the beginning of the financial year ending June 30, 1999. They were granted a relaxation by way of transfer of an amount to the capital reserve over the period of five years ending June 30, 2003.

The capital reserve so created was not to be utilized for any purpose other than to provide for deferred tax liability.

However, afterward , as per CIRCULAR NO. 8 OF 2004, which is quoted hereunder;

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"It is hereby clarified that the aforesaid capital reserve which represents deferred tax liability, which has been recognized over a period of five years and such transfer was allowed to enable the company to have sufficient profits available when the requirements of IAS-12 (Revised) become applicable on expiry of the extended time period i.e. June 30, 2003. Accordingly, such amount cannot be treated as reserve any longer and should be classified/disclosed as liability. In order to comply with the requirements of IAS - 12 (Revised) with effect from 1 July 2003, the leasing companies should record the deferred tax liability in net profit or loss for the period, in accordance with the requirements of IAS - 8".


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Best Regards,

Faisal.

[Major]

Thank you so much sir Faisal...
I didn't expect such a detailed reply in extremely professional manners.

Thanks a lot for your help.[)]

[faisal_desperado]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Major</i>
<br />Thank you so much sir Faisal...
I didn't expect such a detailed reply in extremely professional manners.

Thanks a lot for your help.[)]
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">


Thanks for the appreciation Major, let me clarify that i should not be called as "Sir".

Mere calling Faisal will be sufficient.

Regards,