Deferred Tax Liability on Special Reserve created under Section 36(1)(viii) of the Income Tax Act, 1961
RBI vide its Circular No. DBOD.No.BP.BC.77/21.04.018/2013-14 on
“Deferred Tax Liability on Special Reserve created under Section 36(1)(viii) of the Income Tax Act, 1961” dated December 20, 2013 advised banks, as a matter of prudence, DTL should be created on Special Reserve.
For this purpose, banks may take the following course of action:
a) If the expenditure due to the creation of DTL on Special Reserve as at March 31, 2013 has not been fully charged to the Profit and Loss account, banks may adjust the same directly from Reserves. The amount so adjusted may be appropriately disclosed in the Notes to Accounts of the financial statements for the financial year 2013-14.
b) DTL for amounts transferred to Special Reserve from the year ending March 31, 2014 onwards should be charged to the Profit and Loss Account of that year.
In view of the requirement to create DTL on Special Reserve, banks may reckon the entire Special Reserve for the purpose of computing Tier-I Capital. Reference in this regard is also drawn to the Announcement “Manner of Reporting by the Auditors In Respect of RBI’s Circular on Deferred Tax Liability on Special Reserve created under Section 36(1) (viii) of the Income Tax Act, 1961” dated April 30, 2014 issued by the Auditing and Assurance Standard Board of the Institute of Chartered Accountants of India.