What is provision for deferred income tax?


2 Answer(s)


Deferred income taxes occur when there is a difference in depreciation policy used by the tax department and the company. Hence there might be a period in which the company paid less taxes that what it was supposed to. That amount is recorded as deferred income tax which has to be paid later.

For example a company could have a 5 years depreciation policy while the tax laws might dictate a 4 year depreciation. Hence the companys total expenses and taxable income will be different under these 2 circumstances.