Deferred tax liability

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Querist : Anonymous

Querist : Anonymous (Querist)

22 November 2014 When to remove deferred tax liability entry from the books of account?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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22 November 2014 When the book depreciation is more and IT depreciation is less you have to reverse the deferred tax liability calculated to that extent. This way every year some amount is removed.

Querist : Anonymous

Querist : Anonymous (Querist)

22 November 2014 Book depreciation is always higher than the IT depreciation and difference is taken as deferred tax liability.

How do we pass the entry to reverse the deferred tax liability?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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22 November 2014 In the initial years IT depreciation will be higher and later years IT depreciation will be lower than book depreciation.

DEFERRED TAX LIABILITY

The depreciation for books (SLM) can be lower than the depreciation for taxation (WDV), or the asset may be written off in the books (making the depreciation nil) but has some depreciable value for income tax. In this case, the taxable income of the company will be lower than the actual income, as more depreciation has been deducted from the total income than the actual depreciation. Hence, the company ends up paying lesser tax than it actually should be paying, again on account of the “temporary difference”. This time, the temporary difference is a “deferred tax liability” and has to be carried forward in the books in the balance sheet.

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