21 June 2008
Please Tell Me About Deferred Tax. 1) What is Meaning of Deferred Tax 2) How does arise Deferred tax 3) What effects should be done in Books 4) Other Information about Deferred Tax.
21 June 2008
There is a always a difference between Profit shown in Balance sheet and Taxable PROFIT. It can be due to exemptions, lower deductions, higher deductions etc. There are two types of differences:
a. Permanent - which never changes like exemtptions.
b. Timing - which gets reversed or ironed out over time like depreciation or an expense not allowed in one year but allowed in subsequent year.
Deferred tax is computed on timing differences or we can say due to timing differences tax payment gets deferred.
This is a simple explanation of deferred tax.
Now, let's says due to timing difference an entity will have to pay lower amount of tax in subsequent years. Then such a notional amount will be treated as "Deferred Tax Asset" in balance sheet and "Deferred Tax Income" in P/L.
Deferred tax does not impact actual tax payments !!
For further detail information you may refer to AS-22 on Acccounting for Income taxes issued by ICAI.
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