According to AS-3, how should taxes on income be classified in the cash flow statement?

They should be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities

Different types of taxes include income tax (levied on regular profit), capital gains tax (imposed on profits from asset sales), and dividend tax (applied to distributed dividends to shareholders). According to AS-3 guidelines, tax-related cash flows must be distinctly revealed and categorized as operating activities, unless they are directly linked to financing or investing activities. This implies that: Tax on operating profit should be categorized as an operating cash flow. Dividend tax, encompassing tax on dividends paid, should be classified as a financing activity, in line with dividend payments. Capital gains tax settled upon the sale of fixed assets should be labeled as an investing activity. This approach aims to enhance transparency and help users of financial information comprehend the nature and implications of these tax-related cash flows on the enterprise's cash flows.