Deferred Tax
The tax effect of timing differences between how items are treated in the accounts and how they are treated for tax purposes.
Formula
Deferred Tax = Temporary Difference x Applicable Tax Rate
Unit
₹ crore
In depth
Deferred tax exists because accounting depreciation, provisions and losses are recognised on a different schedule from the tax code's, and the standard requires the eventual tax consequence to be booked now. A deferred tax liability is not money owed to the tax department today; it is a timing item that may reverse over many years or, for a growing company, may never reverse at all. Deferred tax assets arising from carried-forward losses are recognised only where future profit is probable, so writing one off is a management admission that profitability is not coming. Treating deferred tax liabilities as debt in leverage ratios overstates the company's obligations.
Worked example
Accounting depreciation is ₹60 crore while tax depreciation is ₹100 crore, a ₹40 crore temporary difference. At a 25% rate, a deferred tax liability of 40 x 0.25 = ₹10 crore is created, reversing in later years when tax depreciation falls below the accounting charge.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Deferred Tax” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.