CA
141 Points
Joined July 2012
Deferred Tax Liability (DTL) --
It would be easy to understand it thru an eg.
Suppose u claim 100% depreciation on Scientific Research Assets as per IT Act,1961. And in Accounts u hav claimed say 25.89% depn.
Now at the time of computation u'll get higher depn and consequently ur tax liability will fall. But u've got 100% depn in tax so no further depn in future years.
Next Year again u will claim depn @ 25.89% on those assets. But the same wud not b allowed in Computation. So u will have to pay higher tax in later years.
That is why we create DTL on the difference in Depreciation amount (as per a/cs and tax) @ of tax rate applicable in the current year.
The same wud be reversed in later years in which u'll claim depn on those assets in accounts but not get the benefit in tax.