Deffered Tax & calculation

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This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

09 April 2010 Dear Sir,
kindly solve my Query,I am very Puzzled,
1- what is Deffered Tax
2- (i)D.T. Liability (ii) D.T.Assets
3- also give me example and calculation,
4- is there any relation with MAT
I will highly oblized if you solve it
Regards
Prabhakar

CA CS CMA Srinivasan N

CA CS CMA Srinivasan N (Expert)
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09 April 2010 Hi,
Deferred Tax is the Tax arising due to the differences between accounting profit and Income Tax Profit. There are 2 types of differences between book profit and Income Tax Profit.
1. Permanent Differences eg. dis-allowance u/s 40(A)3 for Cash payment beyond 20000/- Or Disallowance for Penalty Paid
2.Timing Difference - Eg - Depreciation on Assets, 43B Disallowance

To make u understand in simple terms, Lets consider one example

Suppose the profit as per books is Rs.100000/-.

Now consider there was a Fine Paid Rs.2000/- and the same is disallowed in IT. Also consider depreciation as per books is 20000/- and the same if computed in income Tax is Rs.25000/-.
Now the Income Tax profit will be Rs.97000/- (100000+2000+20000-25000)
Therefore now the tax liability is reduced due to Depreciation to the extent of Rs.3000 multiplied by tax rate say 30% - The tax paid less is Rs. 900/-

Now in future years the depreciation in Income Tax will become less compared to Book Depreciation. Therefore we have to provide for this DEFERRED TAX and the same is called DEFERRED TAX LIABILITY.

However the fine paid is permanently disallowed - so there is no DEFERRED TAX on the same.
Hope its clear now. In case of any further queries contact me at srini.ca@gmail.com

Rgds
Srinivasan