Deffered tax

Deffered tax is accounting for the tax which would arise in near future. Many times, due to depreciation or disallowances, our profit as per profit/ loss account and taxable profit as per income tax act, do not match. So, defered tax provision is created to balance out the same in the books of accounts.

Eg : Profit as per Profit / loss account - 1,00,000 and taxable profit - 70,000 Now, there is a difference of 30,000. On this 30,000 - defered tax provision is made.

The difference in profits should be in the nature of timing difference i.e. temporary and not permanent.

Eg : Timing differences - depreciation as per companies act and as per income tax act, etc.

Permanent differences - Disallowances of donation, etc...