Deferred tax (AS 22)

Deferred tax (Accounting Standard 22) is the tax effect of timing differences — items taxed in a different year than they are booked, such as depreciation or provisions. Each difference, multiplied by the tax rate, is a deferred tax asset (DTA) or liability (DTL). The calculator nets them, finds the year’s movement, and gives the journal entry to pass.

1. List each timing difference (depreciation / fixed assets, provisions, gratuity, unabsorbed losses, etc.) at its closing and opening balance (AS 22).
2. Tax-effect each balance: balance × the applicable tax rate ÷ 100 — the closing side at the current-year rate, the opening side at the prior-year rate.
3. A difference that will save tax later is a deferred tax asset (DTA); one that will cost tax later is a deferred tax liability (DTL).
4. Net the DTAs against the DTLs for the closing and the opening positions, then take the movement = closing net − opening net.
5. The movement is routed through the profit & loss account via a journal entry (losses and unabsorbed depreciation are recognised as a DTA only when there is virtual certainty of future income).

Tax depreciation exceeds book depreciation, leaving a timing difference of ₹2,40,000 at the year-end and ₹1,60,000 at the start of the year. The tax rate is 25% in both years.

1. Closing deferred tax liability = 25% × ₹2,40,000 = ₹60,000.
2. Opening deferred tax liability = 25% × ₹1,60,000 = ₹40,000.
3. Movement = ₹60,000 − ₹40,000 = ₹20,000 extra liability.

Create an additional ₹20,000 deferred tax liability: Deferred tax expense A/c Dr ₹20,000 / To Deferred tax liability ₹20,000.

A difference between accounting income and taxable income that originates in one year and reverses in later years — for example, depreciation claimed faster for tax than in the books.

If the item will reduce future tax (e.g. a disallowed provision) it is a deferred tax asset; if it will increase future tax (e.g. excess tax depreciation) it is a deferred tax liability.

The rate (and surcharge/cess) enacted or substantively enacted for the year the difference is expected to reverse — practically, the current year’s effective rate for the closing balance.

Only when there is virtual certainty, supported by convincing evidence, that enough future taxable income will be available to realise it.

No. It is a book provision under AS 22 to match tax expense with accounting income; it does not change the actual tax paid for the year.