deferred tax liability

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krishna Bairi (Querist)
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21 August 2010 why do we calculate deferred tax.
tell me the easiest way to recognize deferred tax liability or Asset.
which type of items included in this calculation

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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21 August 2010 Provision for deffered tax is to be made as required by AS 22.

Profit of an entity as per the books will be different from the income computed as per Income Tax Act. The possible reasons for this is change in depreciation rate, certain expenses not allowed as per IT Act like items covered U/s.43B, 40(a).....

Provision for Income-tax is made in the books based on the income computed as per IT act. However, the expenses which are disallowed in one year are allowed to be deducted on payment basis in the year of payment (43B, 40(a)) and depreciation which over the period of time will come in line with both books and IT. These items which are capable of being reversal over a period of time are called timing differences. Such differences are capable of adjustment and hence the tax effect of the same needs to be provided in the books so as to give a true & fair view ........

In view of above, amount equal to tax rate on timing differences is provided in the books which denotes either benefit to be availed or foregone in future.

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