The HR of my current organization explained “what is deferred tax asset” recently when I asked her aquery related to taxes.
She told me that deferred tax assets arise when the tax amount has been carried forward or has been paid but hasn’t been recognised in the income statement. The difference between the book income and the taxable income is taken as the value of deferred tax assets.
For instance, deferred tax may arise if the tax authority recognises expenses at different points of time than that established by an accounting standard. Deferred tax assets are useful in plummeting the future tax liability of the company.
Circumstances when Deferred Tax assets may arise:The base for assets and liabilities or tax rules are different
Revenue earned is taxed even before the time when it’s required to be recognised
Expenses are taken into consideration by the taxing authority even before they should be recognised.
Let’s assume there’s a company ABC that manufactures TVs. The company ABC assumes that the probability of a TVs being sent for warranty repairs is 2 percent. If the revenue of ABC for the financial year 2018 is Rs. 10 lacs, then this discrepancy will arise in the tax authority statement and the income statement.
Statement of Tax Authority:
Revenue |
Rs. 10 Lacs |
Warranty Expense |
0 |
Taxable Income |
Rs. 10 lacs |
Taxes Payable (at 30%) |
Rs. 3 lacs |
Income Statement of Company:
Revenue |
Rs. 10 Lacs |
Warranty Expense |
Rs. 20000 |
Taxable Income |
Rs. 9.8 lacs |
Taxes Payable (at 30%) |
Rs. 2.94 lacs |
In this example, deferred tax asset is the difference between the two taxes payable.
So, the deferred tax asset: Rs. 300000 – Rs. 294000 = Rs. 6000.
I hope now you know what is the meaning of deferred tax asset.
Read more:
Who is not required to file income tax return?
What is exempted from income tax?
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What is deferred tax asset?
Ray
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2022-03-21T18:15:38+00:00 2022-03-21T18:44:08+00:00Comment
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