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Deferred tax assets are often created due to taxes paid or carried forward but not yet recognized on the income statement. For example, deferred tax assets can be created due to the tax authorities recognizing revenue or expenses at different times than that of an accounting standard.

Thus, deferred tax is the tax for those items which are accounted in Profit & Loss A/c but not accounted in taxable income which may be accounted in future taxable income & vice versa. The deferred tax may be a liability or assets as the case may be. ... Deferred tax is the tax effect of timing differences.

The deferred tax liability represents a future tax payment a company is expected to make to appropriate tax authorities in the future, and it is calculated as the company's anticipated tax rate times the difference between its taxable income and accounting earnings before taxes.

Deferred tax liabilities can be treated as equities or liabilities when they are recognized. Equity classifications typically result from the company using accelerated depreciation for tax purposes but not for financial-reporting purposes.

Calculation of Deferred Tax There are no strict rules for deferred tax calculation as it is merely the difference between gross profit in a Profit & Loss Account and a tax statement.

Illustration. In the given situation, excess tax paid today due to the difference among the income computed as per books of the company and the income computed by the income tax authorities is 12,60,000 12,00,000 = 60,000. This amount i.e. 60,000 will be termed as deferred tax asset (DTA).

A deferred tax liability is a tax that is assessed or is due for the current period but has not yet been paid -- meaning that it will eventually come due. The deferral comes from the difference in timing between when the tax is accrued and when the tax is paid.