Deffered Tax

We all know that Income of an assessee as per the books may not be same as that of Income as per the IT Act.  Possible reasons may be change in depreciation rate, disallowances U/s.40(a), 43B etc.,  However, a disallowance in one year will be set off from the income in the subsequent years.  These are known as timing differences.  Though these are allowable in the subsequent years, provision of income-tax is made on actual basis for the that year in the books.  Hence, tax on the timing differences is provided in the books so as to show a true and fair view as per AS 22.

 

its correct

In addition to what Dharmaraju has mentioned. The provision is made for actual liabilty but the difference between tax on actual profit and taxable profit which is due to timing difference is also debited/credited to P/L account. This gives rise to the deferred tax asset/liabilty.   

 

Deferred tax is the tax effect of timing differences.

Timing diffe   Timing differences are the differences between taxable income and accounting income for a period that originate in one period and are capable of reversal in one or more subsequent periods.

Examples:

-         Depreciation rate/method different as per Accounts and Income tax Calculation

-         Expenditure of the nature mentioned in Section 43B (e.g. sales tax charged in account on accrual basis but not paid; such sales tax will be an allowable expenditure in the year of payment and a disallowable expenditure in the year in which accrued)

hello friends

Plz tell me whether DTA /DTL will be created on Accumulated Prov. of Gratuity or only on current year prov. of gratuity?

Only current year provisions of gratuity as you have debited current year gratutiy to profit and loss account. Further, on accumulated gratuity you would have already created deferred tax asset in earlier years.

The logic behind of AS -22, is Accrual basis of Accounting one of the fundmental accouting assumption. Meaning if the difference between accounting profit and Income tax profit is as a result of temporary differences, you need to defer the tax liability or assets by recognising the effect of the diffence in the same year because you are following accrual basis of accounting.

 Thanks all of you.