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Deferred tax asset

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11 August 2012 What is the treatment of Deferred Tax Asset in coming years following its creation and what is the difference on income if deferred tax is not created on Business Loss and Unabsorbed depreciation?
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Sanjay Chauhan (IFRS)

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Sanjay Chauhan (IFRS) (Expert)
12 August 2012 Deferred tax asset has to be reversed in the future peruiod as and when the unabsorbed losses are set off in income tax computation.

If DT is not created in the year in the first year, the effective tax rate would be high in that year.

Subsequently when the carryforward loss is actually offset in future years, the effective tax rate will be very low in the year of set off.

Thus Def tax asset has to be created when there is vitual certainity of reversal and avoid unwarranted volatility in effctive tax rates.
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