Deffered Tax

Because there is a difference between the income of the comany & taxable income of the company ............just have a look at the dep rates of com. act & income tax act because of it there is a income diff occurs which generates a tax difference .........that difference calculated as deffered tax assestsor liabilities

thank you for the nice explanation

@ Nisha, you are totaly wrong, Deferred Tax is there not for harmonising the tax rate differences of co. Act, and IT Act. It is there for just recognising the Tax on timing difference i.e. which you can avail in future considering that we recognise DTA / DTL

Ex: Accounting Income (PBT) = 150000

      Taxable Income               = 180000

Timing Difference                  = 30000, you need to prepare DTA i.e. 30000 * 30% (assumed) = 9000

Entry: DTA A/c Dr. 9000

                   To P/l A/c         9000

P/l A/c Dr.         54000 

             To Provision for Current Tax A/c Dr. 54000

TAX EXPENSE: Current Tax      54000

                           DTA                (9000)

                                   TAX Exp 45000

Note: Theres nothing to do with Co. Act Tax rate, we have to take the tax rate as per IT Act on the balance sheet date.