New Delhi, June 27: The Institute of Chartered Accountants of India (ICAI) has deferred by three years the applicability of accounting standard AS 22 to non-corporate enterprises such as sole proprietors, partnership firms, trusts, Hindu undivided families, association of persons and co-operative societies.

AS 22 stipulates that the tax expense for the period comprising current and deferred taxes should be included in the determination of the net profit or loss for the period. The objective of AS 22 is to prescribe accounting treatment for taxes on income.

Non-corporate enterprises will now be required to follow AS 22 ‘accounting for taxes on income’ from April 1, 2006. The ICAI council had earlier decided that these enterprises would follow AS 22 from April 1, 2003.

The decision has been taken by the ICAI council at its meeting held in New Delhi.

‘Taxes on income’ is a significant item in the statement of profit and loss of an enterprise. According to the matching concept, taxes on income are accrued in the same period as the revenue and expenses to which they relate.

Matching of such taxes against revenue for a period poses special problems arising from the fact that in a number of cases, taxable and accounting incomes may be significantly different.

This divergence between taxable and accounting incomes, coming into being from timing differences, gives rise to deferred tax liabilities, said a senior ICAI official.

The decision to defer the applicability of AS 22 has been taken by the council on a consideration of certain representations and views expressed at various forums. This decision has been taken with a view to provide some more time to such enterprises for effective implementation of AS 22.

In March this year, ICAI allowed firms to treat payouts for their voluntary retirement schemes as ‘deferred revenue expenditure’, which means they will not have to expense it in the quarter that it is incurred.