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What is Deffered Tax: Assets & Liability, Definition with Examples

What Is Deferred Tax?

What Is a Deferred Tax Asset?

What Is Deferred Tax Liability?

Example of Deferred Tax Assets and Liabilities

Balance Sheet of a Company

Balance Sheet Factors

Amount

Income/Revenue

₹1,00,000

Taxable income

₹98,000

Warranty claim expenses

₹2000

Tax payable (at 20%)

₹19,600

Income Tax Statement of the Same Company

Balance Sheet Factors

Amount

Income/Revenue

₹1,00,000

Taxable income

₹1,00,000

Warranty claim expenses

Nil

Tax payable (at 20%)

₹20,000

Illustration on the Calculation of Deferred Tax Asset And Deferred Tax Liability

 

This table explains the concept of Deferred Tax Asset And Deferred Tax Liability. Let’s assume that the illustration doesn’t have an opening balance for book and tax records.

Specifications

Difference (Book-Tax)

DTA/DTL

Income

₹2,00,000 (₹10,00,000-₹8,00,000)

-

Reduction

₹1,00,000 (₹2,00,000-₹1,00,000)

₹30,000 (30% of ₹1,00,000)

Payable sales tax

₹50,000 (₹50,000- ₹0)

₹15,000 (30% of ₹50,000)

Leave encashment

₹1,00,000 (₹2,00,000- ₹1,00,000)

₹30,000 (30% of ₹1,00,000)

DTA/DTL (closing balance)

-

₹15,000

Here the payable tax will be -

= 30% of ₹8,00,000

= ₹2,40,000

If the deferred income is ₹15,000, then the net tax effect will be the difference.

= ₹2,40,000- ₹15,000= ₹2,25,000.

Individuals can also use this example to understand the Deferred Tax Liability calculation.

Let’s check the impact of DTA and DTL on tax holidays in the balance sheet.

How Does DTA/ DTL Affect Tax Holidays?

What Is the Effect of Deferred Tax Asset And Deferred Tax Liability on MAT?

FAQs about Deferred Tax Assets & Liability