10 June 2011
While computing income tax some timing differences arises .That means expenses allowed as per accounts and not allowed as per income tax.Tax on those differences is computed and accounted in accounts as an asset or liability.
The deferred tax is a bookkeeping term that helps to account for the difference between the value of a liability or an asset and the amount of tax that is due on the liability or asset. A tax situation of this type may come about for several different reasons, including temporary circumstances that help to put off or defer the payment of taxes until a later date. Evaluating the current status of assets and liabilities is a common part of the tax planning and projection functions associated with both the management of personal finances and the accounting process for businesses and other entities. For individuals, a deferred tax situation may involve delaying the payment of taxes on assets that are set aside for the retirement years. Many governments around the world allow citizens to place a portion of their earned annual income into approved retirement plans and delay paying taxes on that portion of the annual income until the funds are withdrawn at a later date. Utilizing an approved deferral may help with the amount of income tax due for the current filing period, depending on the amount of income that is deposited into the retirement plan.
CAclubindia
