Consolidated financial statement of JSW S.A. Capital Group for 2012

2.16. Current and deferred income tax

Income tax for the reporting period comprises current tax and deferred tax. The tax is recognized in the financial result, excluding the extent to which it applies directly to items recognized in other comprehensive income or equity. In this case the tax is also recognized respectively in other comprehensive income or equity. The current income tax liability is calculated on the basis of the applicable tax regulations. The Management Board periodically reviews the calculation of tax liabilities with reference to situations in which pertinent tax regulations are subject to interpretation, creating provisions, if any, for the amounts due to tax authorities.

The deferred income tax liability resulting from temporary differences between the tax value of assets and liabilities and their carrying value in the consolidated financial statements – is recognized in the full amount, using the balance sheet method. However, if the deferred income tax results from original recognition of an asset or liability in a transaction other than combination of business entities, which does not influence the financial result or the income tax (tax loss) it is not presented. Deferred income tax is determined using tax rates (and regulations) actually or legally applicable as at the final day of the reporting period which, pursuant to expectations, will prevail at the time of realization of pertinent deferred income tax assets or settlement of the deferred tax liability.

Deferred income tax assets are recognized if it is probable that in the future taxable income will be generated which will make it possible to use the temporary differences.

A deferred income tax liability resulting from temporary differences resulting from investments in subsidiaries and associates is recognized unless the timing of the reversal of temporary differences is controlled by the Group and it is probable that in the foreseeable future these differences will not be reversed.

Deferred income tax assets and liabilities are subject to compensation if there is an enforceable legal title for the compensation of current income tax assets with the current income tax liabilities and if the deferred income tax assets and liabilities pertain to income taxes accrued by the same tax authorities from the entity subject to taxation or other entities subject to taxation if there is an intention and possibility to settle the accounts in net amounts.