income tax

This query is : Resolved

Report Abuse Follow Query Ask a Query

Querist : Anonymous

Querist : Anonymous (Querist)

13 May 2010 Sir

what is the meaning of deffed income tax?

Regards
V.R

Ashish Murarka

Ashish Murarka (Expert)
Follow

13 May 2010 Deffered income tax:
A liability recorded on the balance sheet that results from income already earned and recognized for accounting, but not tax, purposes. Also, differences between tax laws and accounting methods can result in a temporary difference in the amount of income tax payable by a company. This difference is recorded as deferred income tax.

Rahul Gupta

Rahul Gupta (Expert)
Follow

13 May 2010 There may be difference how certain items of expenditure are treated for tax purposes and how a company actually treats them in its accounts.

For example, tax laws allow a 100% depreciation in the year of acquisition of certain assets. But a company may actually write off the depreciation over a larger number of years in its accounts.

In other words, the company may charge depreciation at lower rates than allowed under tax laws. Or it may use a different method of charging depreciation. Tax laws may allow a company to deduct certain expenses in full in a single year, but it may phase out the charge over a number of years.
In these cases, a company ends up postponing part of its tax liability on this year's profits to future years. This is because, in the current year, its profits for tax purposes would be lower than the profits computed for accounting purposes. Under such circumstances Deferred tax liability arises.
In exactly opposite circumstances where the tax is paid in excess but the expenditure is allowed subsequently, Deferred tax Asset results.

Also, you can the check the files section for various files on Deferred Taxes and liabilities.

Upgrade to CAclubindia Pro. Subscribe Now!