Direct Taxation
Explain deferred tax timing
Why can tax paid today be lower than the tax expense on the income statement?
Different depreciation schedules can shift the timing of tax. An earlier tax deduction can create a deferred tax liability.
Deferred tax liability = taxable temporary difference × assumed tax rate
₹80 lakh − ₹60 lakh = ₹20 lakh taxable difference. Multiply by 0.25 to get ₹5 lakh.
A machine’s carrying amount is ₹80 lakh and tax base is ₹60 lakh. At 25%, the ₹20 lakh difference gives a ₹5 lakh liability.
₹80 lakh − ₹60 lakh = ₹20 lakh taxable difference. Multiply by 0.25 to get ₹5 lakh.
Next period the difference is only ₹8 lakh and the rate stays 25%. What is the closing liability?