CA Vishal Didwania
Book Profit > IT Profit
=Deferred Tax Liability
Because if tax was calculated on Book Profit the Tax would be more.
Tax calculated on IT profit is less than the Book Profit.
Hence a Liability of Tax Savings is made in the current year but it will result in Future Tax Liability as a result of Depn.
IT Profit > Book Profit
= Deferred Tax Asset
Because if Tax was calculated on Book Profit the Tax would be more.
Tax Calculated on IT profit is more than the Book Profit.
Hence more Tax is made in the current year, which will result in More Tax Paid on Profit.
Book Loss > IT Loss
=Deferred Tax Asset
Tax Saving will be lower in earlier years as per Tax laws, However it will be more as per accounting treatment.
Therfore a deferred Tax Asset will be created for such timing diff which will be realised in the Future period when tax savings as per tax laws will be more.
Similarly another timing diff will be created in respect of Tax Loss which can be carried forward to future period for being set off
IT Loss > Book Loss
=Deferred Tax Liability
Tax Saving will be more in earlier years as per Tax laws, However it will be less as per accounting treatment.
Therefore a deferred Tax liability will be created for such timing diff which will be realized in the Future period when tax savings as per tax laws will be less.
Similarly another Timing Diff will be created in respect of Tax Loss which can be carried forward to future period for being set off.
As per Books = Profit As per Inc. tax = Loss Deferred Tax Liability
Deferred Tax Liability will be created as a result of timing diff between Income Tax Loss & Book Profit.
On the Other hand a Deferred Tax Asset will also be created as a result of Tax Loss which will be carried forward to Subsequent Years.
Both the entries will be set offd against each other..
As per Inc. tax = Profit As per Books = Loss Deferred Tax Asset
Deferred Tax Asset will be created as a result of
Income Tax Profit more than the Accounting Profit.
Deferred Tax A/C --- Dr.
To Profit & Loss A/c Entry for Deferred tax Liability
Profit & Loss A/C
To Deferred Tax A/c
Thanks to Harish N Gandhi
