02 May 2009
Deferred tax liability / assets is a method for recognising any future tax liability or assets arising due to any temporary differences arising between books and tax books. A very simple and most prevalent example may be a temporary difference in tax liability as per books and tax is depreciation rates due to which the tax liability of the current year may be low due to higher charge of dep. as per IT Act. However this may reverse in future and result in a higher tax liability. By way of deferred tax an the this future liability is recognised in books in current year. Deferred tax assets arises where an expenditure is disallowed in computation and is charged off in books in the year one itself. The deferred tax assets is recognised only if there is a virtual certainty of availing such assets in near future other wise ignored.
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