19 September 2009
deferred tax arises because there is a difference between accounting income and taxation income like different depreciation rates in Companies Act and In IT Act. Now there is two concept. Timing difference and permanent difference. Permanent difference are like their name suggests, are frozen and not capable of being reversed in subsequent years. Note that permanent differences mostly arise due to provisions of IT Act. Now there is timing difference which arises in one accounting period and are capable of being reversed in one or more subsequent period. E.g, VRS scheme charges are allowed in IT Act over 5 years whereas you would charge the entire expense in your P/L Account in the year 1 itself. So there would be difference in accounting income and income as per tax records in the year 1 which would gradually be nullified in the next 4 years. DTA or DTL is the tax saved or to be incurred in this difference between income number between two different set of records.
Hope I have been able to give you some clue about this. Feel free to ask me if you have any doubts. \
CAclubindia
