Deferred Tax explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
One of the few classification questions in Schedule III with no judgement in it at all — and one adjacent one that companies get wrong constantly.
The prohibition
Ind AS 1 para 56 states: "When an entity presents current and non-current assets, and current and non-current liabilities, as separate classifications in its balance sheet, it shall not classify deferred tax asset (liabilities) as current assets (liabilities)."
Accordingly, deferred tax assets and liabilities will always be presented as non-current.
This is worth noting precisely because everything else in the current/non-current analysis turns on the operating cycle, the twelve-month test and the unconditional right to defer settlement. Deferred tax is exempted from all of it — the expected reversal period is irrelevant to presentation.
Read the paragraph carefully: the prohibition applies when an entity presents current and non-current assets and liabilities as separate classifications.
For a company applying Ind AS Schedule III that condition is always satisfied, because the Schedule removes the Ind AS 1 option of presenting the face of the balance sheet in order of liquidity. So the "always non-current" conclusion is unqualified in this context — there is no presentation basis available under Schedule III on which deferred tax could be split.
The line item itself is presented as "Deferred tax assets (net)", reflecting the offsetting already applied under Ind AS 12, and it sits in the non-current asset list between financial assets and other non-current assets.
The adjacent trap: capital advances
Capital advances, or advances for purchase of capital assets, should be included under other non-current assets and should not be included under capital work-in-progress.
The logic is that capital work-in-progress represents expenditure on assets under construction, installation or development. An advance paid to a supplier against a future purchase is a receivable-type balance — the company has parted with cash but no asset is under construction against it.
Getting this wrong distorts two things at once: the CWIP figure, and the CWIP ageing schedule introduced by the 24 March 2021 amendment, which reports amounts in progress by period and separately identifies projects that are overdue or have exceeded their cost. An advance sitting inside CWIP has no project timeline to be measured against.
The full non-current asset list
- Property, plant and equipment
- Capital work in progress
- Investment property
- Goodwill
- Other intangible assets
- Intangible assets under development
- Biological assets other than bearer plants
- Financial assets — investments; trade receivables; loans; others (to be specified)
- Deferred tax assets (net)
- Other non-current assets
And the current asset list
- Inventories
- Financial assets — investments; trade receivables; cash and cash equivalents; bank balances other than cash and cash equivalents; loans; others (to be specified)
- Current tax assets (net)
- Other current assets
Note that there is no current counterpart to the deferred tax line — by design. Current tax assets (net) is a different item, being tax paid or recoverable for the period rather than a temporary difference.
Common mistakes
- Splitting deferred tax by expected reversal period.
- Presenting deferred tax gross rather than net.
- Parking capital advances inside capital work-in-progress.
- Confusing current tax assets with a current portion of deferred tax.