Deferred Tax Calculation Excel

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Income of $97,500 x 20% = sum of deferred tax liability and income tax payable); credit deferred tax liability $500 (depreciation difference of $5000 - $2,500 x 20%); and credit income tax payable of $19,000 (taxable income of $95,000 x 20%). Deferred tax – timing differences. In order to normalize the earnings, we need to normalize the tax charge. History of allama iqbal. This is done by adding a deferred tax charge to the mainstream tax charge. The deferred tax charge is the value of the temporary timing differences at the current rate of tax enacted for the future periods.

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Deferred Tax Liability arises due to timing difference in the value of Assets as per Books of Accounts and as per Income Tax Act.
Also we can say that Deferred Tax Liability/Asset arises due to the difference between Profit as per Books of Accounts (P&L Account) and profit as per Income Tax Act. (Taxable Income).
Depreciation is the main reason for difference in the profits as per books of Accounts and Taxable profits as per Income Tax Act. Both Income Tax Act and Companies Act prescribe different rates of Depreciation for different categories of Assets.
A deferred tax liability is recognized for temporary differences that will result in taxable amounts in future years.
(Deferred Tax Liability is created at the highest Marginal Rate of Tax i.e. 30.9%)
A1. What is the Meaning of Creating this Deferred Tax Liability
A1. It simply means that the company will definitely have a tax Liability of that much in the future years. This is because in the years to come the Depreciation as per Income Tax Act will be lesser that the Depreciation as per Books of Accounts. Hence in these years the Company will have to create a Deferred Tax Asset
In Year 1 Deferred Tax Liability is created, this means that in Year 1, the company has postponed its tax Liability of Rs. Rs. xxxx/- to the Future years. This Liability will come back to the company one day or the other.
When the WDV of Assets as per Books and WDV as per IT Act both become ZERO, there is neither Deferred Tax Liability nor Deferred Tax Asset as there is no timing Difference
Deferred Tax is purely an accounting Concept. AS 22 – “Accounting for Taxes on Income
To Deferred Tax Liability A/c XXXX
(Being Deferred Tax Liability created in Year 1 at the Maximum Marginal Rate of Tax)
2. Deferred Tax Asset Dr XXX
TAX TREATMENT:
INCOME FROM BUSINESS:
Net Profit as per P&L A/c XXX
Add: Deferred Tax Liability XXX
Note: As Deferred Tax Liability is a Provision, it should be disallowed as an expense. Also deferred tax asset should be deducted from Income.