Defered tax

Is it mandatory to consider preliminary expenses as timing difference while calculating deferred tax liablity of a company in subsequent years of commencement of business (Please go through the following instance)..? For Eg: Preliminay Expenses incurred by a company is Rs.25,000 which is written off over a period of 5 years as a matter of prudence for normal accounting purposes. whereas preliminary expenses allowable u/s 35D of the Income tax act 1961 is coming around Rs. 5,000 which will be amortized in 5 equal installments over a period of 5 years. So Rs.20,000 (25000-5000)  is a permanent difference as only Rs. 5,000 is allowable u/s 35D of the IT Act. whether Rs.5,000 is considered as timing difference or Rs.25,000 is considered as timing difference for the purpose of deferred tax calculation. How much amount of preliminary expenses would be considered for deferred tax calculation in first year and in subsequent years..? 



 
Replies (7)

under 35AD there will be 100%/150% deduction of tax allowance in the year it is capitalised in the books.

under accounts there will be allowance of only 5000(being 1/5th of 25000).

this means you are claimimg more deduction of 20000  in tax than you are supossed to as per your books.

so there will be deferred tax liability which is computed as below :

TIMING DIFFERENCE

AMOUNT (RS)
Opening balance  nil
creation

20000.

reversal nil
closing  20000.
   

therefore create dtl on 20000.

Thank you sir,

but for subsequent years how to calculate it.

 

op bal - 20000

creation  - nil (assuming no other timing difference)

reversal - 5000

closing- 15000.

now reverse the entry created earlier by debitind dtl a/c and crediting profit and loss a/c on the tax amount of rs 5000.

Remainig 15000 can be reversed in three years na,

Thank you sir.

yes of course 5000/- in each year

ok Thank you sir.

use thank button to convey thank you.

 

regards.

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