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What is deferred tax

Why the PBT and Taxable Income under Income tax are different
Timing Difference & Permanent difference
Taxing of Income at different rates
Depreciation charged at different rates

Timing Difference
The treatment of depriciation (rate of depriciation) under Companies Act and Income Tax act are different.
Consequently, the PBT and Taxable Income are different so also the tax payable thereon. However the benefit
received in the initial years under the Income Tax Act gets wiped out over a period of time. Therefore, it is called a timing differ

Permanent difference: The tax treatment of some of the non operating income are different under income Tax Act. For exampl
re different.
ver the benefit
erefore, it is called a timing difference.

nder income Tax Act. For example, dividend income from other corporates on which DDT is paid is exempt from tax upto Rs 10 LAKHS Simila
from tax upto Rs 10 LAKHS Similarly long term gain from sale of non current asset are taxed at 20% after indexation
Profit & Loss Statement
31.3.2018 31.3.2019 31.3.2020 31.3.2021 31.3.2022 31.3.2017

Sales 1000 1000 1000 1000 1000


Other Income 10 10 10 10 10
Total Revenue 1010 1010 1010 1010 1010

Expenses
COGS 500 500 500 500 500
Other OH 100 100 100 100 100
Finance Cost 50 50 50 50 50
Depreciation 20 20 20 20 20
Other Expenses 20 20 20 20 20
PBT 320 320 320 320 320
Taxable Income 280 316 330.4 336.16 338.464
Tax on PBT 96 96 96 96 96
Tax on Taxable 84 94.8 99.12 100.848 101.5392
12 1.2 -3.12 -4.848 -5.5392
Statement of Depreciation Split Line Method
Invested in Assets ( Computers ) = 100 Crores Reducing Balance Method
Depreciation Depreciation
under under Income Written Down Value
Companies Act Tax Act
1.4.2017 100 SLM 100 RBM (WDV)
31.3.2018 20 60
Balance
as on
31.3.2018
80 40
31.3.2019 20 24
Balance as 60 16
31.3.20 20 9.6
Balance 40 6.4
31.3.21 20 3.84
Balance 20 2.56
31.3.22 20 1.536
Balance Zero 1.024
Balance Method
Profit & Loss Statement
31.3.2018 31.3.2019 31.3.2020 31.3.2021 31.3.2022 31.3.2017

Sales 1000 1000 1000 1000 1000


Other Income 10 10 10 10 10
Total Revenue 1010 1010 1010 1010 1010

Expenses
COGS 500 500 500 500 500
Other OH 100 100 100 100 100
Finance Cost 50 50 50 50 50
Depreciation 20 20 20 20 20
Other Expenses 20 20 20 20 20
PBT 320 320 320 320 320
Taxable Income 280 316 330.4 336.16 338.464
Tax on PBT 96 96 96 96 96
Tax on Taxable 84 94.8 99.12 100.848 101.5392
12 1.2 -3.12 -4.848 -5.5392
Statement of Depreciation Split Line Method
Invested in Assets ( Computers ) = 100 Crores Reducing Balance Method
Depreciation Depreciation
under under Income Written Down Value
Companies Act Tax Act
1.4.2017 100 SLM 100 RBM (WDV)
31.3.2018 20 60
Balance
as on
31.3.2018
80 40
31.3.2019 20 24
Balance as 60 16
31.3.20 20 9.6
Balance 40 6.4
31.3.21 20 3.84
Balance 20 2.56
31.3.22 20 1.536
Balance Zero 1.024
Balance Method