CEMTREX INC Income Taxes Disclosure

NOTE 21 – INCOME TAXES 

 

As result of changes made by the Tax Cuts and Jobs Act of 2017, that became effective as of January 1, 2022, the company is now required to capitalize for tax purposes certain research and development expenses and amortize domestic expenses over a 5 year period and foreign expenses over a 15 year period, resulting in a deferred tax asset for the capitalized amounts.

 

 

Cemtrex Inc. and Subsidiaries

 

In accordance with ASC 740, Income Taxes, specifically related to uncertain tax positions, a Company is required to use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company believes its income tax filing positions and deductions will be sustained upon examination, and accordingly, no reserves or related accruals for interest and penalties have been recorded as of September 30, 2025.

 

The Company is subject to taxation in the United States federal and state jurisdictions. The Company’s federal income tax and state income tax returns are subject to examination by tax authorities. The Company is not currently under examination by any tax authority.

 

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modification to the international tax framework, and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and other provisions implemented through 2027. The Company does not anticipate the bill will have a material impact on the financial statements.

 

 

At September 30, 2025, the Company had approximately $68,941,426 of federal, $84,017,242 of state, and $9,798,273 of foreign net operating loss carryforwards. The net operating loss carryforwards, if not utilized, will begin to expire in 2030 for federal purposes and in 2026 for state purposes. The company is currently reviewing net operating losses for Section 382 limitation purposes and will make any required adjustments to the net operating losses at the completion of the study.

 

The following is a geographical breakdown of loss before the provision for income taxes.

 SCHEDULE OF (LOSS) INCOME BEFORE PROVISION FOR TAX 

		Year ended September 30,
		2025				2024
Domestic		$	(28,352,803	)		$	(7,090,508	)
Foreign			1,038,715				(385,841	)
Loss before provision for income taxes		$	(27,314,088	)		$	(7,476,349	)

 

The provision for income taxes consisted of the following.

 SCHEDULE OF PROVISION FOR INCOME TAXES 

		September 30, 2025				September 30, 2024
Current (benefit)/provision
Federal		$	-			$	-
State			609,496				165,093
Foreign			125,384				37,187
Total current (benefit)/provision			734,880				202,280
Deferred provision
Federal			-				-
State			-				-
Foreign			-				-
Total deferred provision		$	-			$	-
Total (benefit)/provision for income taxes		$	734,880			$	202,280

 

 

Cemtrex Inc. and Subsidiaries

 

The following is a reconciliation of the effective income tax rate to the federal and state statutory rates.

 SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION 

		For the Fiscal Year				For the Fiscal Year
		Ended				Ended
		September 30, 2025				September 30, 2024
U.S. statutory rate			21.00	%			21.00	%
State taxes, net of federal			5.03	%			-1.74	%
Foreign tax rate differential			-0.28	%			-0.23	%
Change in valuation allowance			-0.34	%			-13.23	%
Return to provision			0.20	%			-1.44	%
State Rate Change			0.21	%			-0.50	%
Other True Up Adjustments			-1.25	%			0.00	%
Goodwill impairment			-0.00	%			0.00	%
Write-Off of Related Party Note with Majority Owner			0.00	%			-1.49	%
Issuance Costs - Equity Financing			0.00	%			-2.35	%
Interest Expense			-0.98	%			-2.80	%
Change in Fair Value of Warrants			10.59	%			1.64	%
Loss on Excess Fair Value of Warrants			-14.62	%			0.00	%
Other permanent differences			-1.06	%			-1.56	%
Effective Tax Rate			-2.69	%			-2.70	%

 

The components of our deferred tax assets and liabilities are summarized as follows.

 SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES 

		September 30, 2025				September 30, 2024
Deferred Tax Assets:
Net operating Loss carryforwards		$	22,289,821			$	21,908,977
Inventory and other reserves			365,475				1,363,737
Allowance for bad debt			32,212				32,919
CECL Allowance			43,877				-
Interest Expense Limitation			4,473,727				4,751,442
Accruals			507,663				439,996
Deferred Revenue			127,838				-
Capitalized R&D			1,086,108				852,417
Warranty reserve			58,946				27,287
Lease Liability			120,739
Other			29,087				15,270
Total gross deferred taxes			29,135,493				29,392,044
Valuation allowance			(28,220,042	)			(28,127,540	)
Net deferred tax assets			915,451				1,264,504
Deferred Tax Liabilities:
Deferred revenue			-				(296,090	)
Prepaid expenses			(39,705	)			-
Goodwill amortization			(138,395	)			(132,685	)
Depreciation			(17,751	)			(10,020	)
Right of use assets			(114,738	)			-
Other			(604,862	)			(825,710	)
Total deferred tax liabilities			(915,451	)			(1,264,505	)
Total deferred tax assets (liabilities)		$	-			$	-

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

 

 

Cemtrex Inc. and Subsidiaries

 

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based upon the Company’s history of operating losses, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company has provided a full valuation allowance for its deferred tax assets as of September 30, 2025, and 2024.

 

Future utilization of the Company’s net operating loss and research and development credit carryforwards to offset future taxable income may be subject to an annual limitation, pursuant to IRC Sections 382 and 383, as a result of ownership changes that may have occurred or that could occur in the future. An ownership change occurs when a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an IRC Section 382/383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. When this analysis is finalized, the Company plans to update its unrecognized tax benefits accordingly.