Deferred Tax Liability

Can anyone please let me explain the basic concept of creating Deffered tax liability... for what it is created ?

M bit confused after reading AS 22 and its not very much clear !! 

Replies (1)

There is difference between Accounting Income and taxable income coz of:-

1) Permanent Difference - means allowances or disallowances which are not capable of reversal.

for example some expenses like donation are not allowed as expense under income tax act. 

2) Timing Difference: means allowances or disallowances which are capable of reversal in subsequent years. 

for example carry forward of losses or unabsorbed depreciation are timing difference because it will be allowed to be deducted from income by IT department in future.

Deferred Tax Assets/Liability is created due to Timing Difference.

speaking in layman's language

if you are going to be benefited or save tax in future for the items or expenses accounted today then it will create deferred tax assets whereas if you are receiveing the benefit or saving tax today and you will account the same expenditure in future it will create deferred tax liability.

the very common and best example for it is different rates of depreciation charged in acccounts as per co. Act, 1956 and rate of depreciation as per Income Tax Act.

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