Deferred Tax

Deferred tax is recognised when there are differences between accounting and tax treatment of items or transactions that will get reversed in future periods. A deferred tax liability represents the amount of income tax payable in future periods due to temporary differences between accounting and tax treatment. For example, accelerated depreciation is available as deduction for tax now as compared to accounting depreciation, so taxable income will be higher in the future periods and hence more tax payable which gives rise to deferred tax liability. A deferred tax asset represents an amount by which the taxable income is expected to be lower than accounting profit in the future.