Accounting Standard 22 explains about Accounting for Taxes on Income had created a great deal of fear in me before i have actually gone through it.So this article is for those who have sufferred from Defferred tax fobia.
My grands parents say-Do good things now , you will get punya and go to Heaven.otherwise you will go to hell.
The above statement according to me is a defination of defferred tax.
Due to tax laws and provisions , the expense which we have booked in Profit and loss account will not be allowed as expense and hence we end up in paying taxes on those also.In future we on fulfillment of obligations,we will get expense benefit which will not be shown in Profit and loss account in future.
Due to above transactions, Profit and loss account in the beginning will show a higher tax and in future will show a lower tax though profit is same in both the years. Hence by providing tax element on that expense disallowed, the tax has been charged off as expenses instead of a provision , following acrual system of accounting. And Thus, the profit after tax would be same in both the years
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