Question
What is deferred tax (DTA and DTL) in simple terms?
Answer
Bottom line: Deferred tax arises because your book profit and your taxable profit differ due to timing.
1. Why it happens
Items like depreciation are treated differently under the Companies Act and the Income-tax Act, so tax on the same profit falls in different years.
2. DTL and DTA
When you pay less tax now and more later you create a deferred tax liability; the reverse creates a deferred tax asset.
3. Prudence
A deferred tax asset is recognised only where future profits are reasonably or virtually certain.
See our Depreciation Calculator (Excel).
This answer is general information based on the law as it stood when written and is not professional advice on your specific situation. Verify the current position and consult a qualified professional before acting. See our disclaimer.