Eight common DTA / DTL scenarios from Indian corporate accounting practice, computed at the Section 115BAA effective rate of 25.17% (22% + 10% surcharge + 4% Health & Education Cess) — the default for most domestic companies post-FY 2019-20.
Replace 25.17% with 17.16% (Section 115BAB new manufacturing) or 27-31% (companies that did not opt for concessional rates) for your specific case. Use the calculator above to plug in your own line items.
| Scenario | Book base | Tax base | Temp. diff. | DTA / DTL @ 25.17% |
|---|---|---|---|---|
| Plant & machinery depreciation (year 1, ₹100L cost) Tax depreciation (15% WDV) exceeds book depreciation (10% SLM) → asset's tax base is lower → taxable temporary difference → DTL. | ₹90.00 L | ₹85.00 L | ₹5.00 L | ₹1.26 L DTL |
| Provision for bad & doubtful debts Book expense reduces accounting profit; tax disallows the provision until actual write-off. Future tax deduction → DTA. | ₹20.00 L | ₹0 | ₹20.00 L | ₹5.03 L DTA |
| Gratuity provision (Section 43B unpaid) Section 43B disallows provision unless paid by ITR due date. When paid, expense becomes tax-deductible → DTA. | ₹8.00 L | ₹0 | ₹8.00 L | ₹2.01 L DTA |
| Leave encashment provision Section 43B(f) — leave encashment is allowed only on payment basis. Provision creates DTA pending settlement. | ₹5.00 L | ₹0 | ₹5.00 L | ₹1.26 L DTA |
| Carry-forward business loss (8-year window) Future tax savings if the loss is set off within 8 years under Section 72. Recognise only with virtual certainty (AS 22) or probable taxable profit (Ind AS 12). | ₹0 | ₹50.00 L | ₹50.00 L | ₹12.59 L DTA |
| MAT credit carried forward (Section 115JAA) Excess of MAT paid over regular tax — usable as set-off for 15 years when regular tax > MAT. Section 115BAA opt-in forfeits MAT credit. | ₹0 | ₹12.00 L | ₹12.00 L | ₹3.02 L DTA |
| Revaluation surplus on PPE (Ind AS 12 only) Book value increases via revaluation reserve but tax base unchanged. Ind AS 12 requires DTL on revaluation surplus; AS 22 does not. | ₹30.00 L | ₹0 | ₹30.00 L | ₹7.55 L DTL |
| Prepaid expense (tax allowed on payment) Tax deduction taken in current year; book expense deferred to future period. Future book expense without further tax deduction → DTL. | ₹3.00 L | ₹0 | ₹3.00 L | ₹75,510 DTL |
Examples illustrative — actual deferred tax depends on the company's elected tax regime (Section 115BAA / 115BAB / default), surcharge bracket, MAT applicability, and accounting framework (AS 22 vs Ind AS 12). DTA recognition requires recoverability under AS 22 ("virtual certainty") or Ind AS 12 ("probable"). Educational tool — not tax or audit advice.
Compute Deferred Tax Asset (DTA) and Deferred Tax Liability (DTL) under AS 22 and Ind AS 12 — line-item temporary differences × Indian corporate tax rate.
22% + 10% surcharge + 4% cess. Default for most domestic companies post-2019.
Temporary Differences (₹)
Positive = book > tax base → DTL · Negative = book < tax base → DTA
Usually positive in early years (tax WDV depreciates faster) → DTL.
Bad-debt provision, gratuity, leave encashment, bonus unpaid — usually negative → DTA.
Carry-forward losses, MAT credit, prepaid expenses, revaluation reserve, etc.
Net Deferred Tax Liability (DTL)
Deferred Tax Asset (DTA)
Recoverable in future periods. Recognition requires "virtual certainty" (AS 22) or "probable" (Ind AS 12) of future taxable profit.
Deferred Tax Liability (DTL)
Will reverse as tax to be paid in future periods. No recognition test — always recognised.
AS 22 vs Ind AS 12 quick reference
AS 22 (Indian GAAP) is income-statement-based using timing differences. Ind AS 12 is balance-sheet-based using temporary differences. Ind AS 12 catches more items (revaluation, undistributed sub profits, business combination differences) and uses a lower DTA recognition threshold ("probable" vs "virtual certainty"). Companies with net worth ≥ ₹250 cr follow Ind AS 12 under the MCA Ind AS roadmap.
Richify is built for individuals — but the AI CFO's reporting layer surfaces the same logic for HUFs, sole proprietors, and small private companies who need to track 80C, 43B, depreciation, and carry-forward losses.
Download Richify — It's FreeDeferred tax is the tax effect of timing differences (AS 22) or temporary differences (Ind AS 12) between book profit and taxable income. A Deferred Tax Liability (DTL) arises when book profit > taxable income in the current period (tax will be paid later — e.g. tax depreciation > book depreciation). A Deferred Tax Asset (DTA) arises when book profit < taxable income (tax already paid for an expense not yet allowed for accounting — e.g. provision for bad debt disallowed until written off). Both are recognised in the balance sheet, offset where the same taxation authority is involved.
Deferred Tax = Temporary Difference × Applicable Tax Rate. Temporary Difference = Book Value − Tax Base (for an asset) OR Tax Base − Book Value (for a liability). Use the company's enacted tax rate: 22% (Section 115BAA), 25% (small companies ≤ ₹400 cr turnover), or 30% (default), each with applicable surcharge (7-12%) and 4% Health & Education Cess. For Section 115BAA companies, the effective rate is approximately 25.17% (22% × 1.10 surcharge × 1.04 cess). Use the calculator above to plug in your line items and see the net DTA/DTL.
Depreciation is the most common deferred tax driver. Books typically use Straight Line Method (SLM) per Schedule II of Companies Act 2013. Tax uses Written Down Value (WDV) per Section 32 with prescribed rates (15% for plant & machinery, 10% for buildings, etc.). In early years, tax depreciation usually exceeds book depreciation — the WDV of the asset on the tax books is LOWER than the carrying amount on financial books, creating a taxable temporary difference and a Deferred Tax Liability (DTL). Example: a plant costs ₹100 lakh; book WDV after year 1 is ₹90 lakh (10% SLM); tax WDV is ₹85 lakh (15% WDV). Difference = ₹5 lakh × 25.17% = ₹1.26 lakh DTL.
Section 43B of the Income Tax Act 1961 disallows certain expenses unless ACTUALLY PAID before the due date for filing the income tax return. Items covered: taxes, duties, cess, employee contribution to provident / superannuation / gratuity fund, leave encashment, bonus, commission, interest on loans from public financial institutions or scheduled banks, sums payable to MSME suppliers (Section 43B(h) effective FY 2023-24). When an expense is accrued in books but unpaid, it reduces book profit but is added back to taxable income — creating a Deferred Tax Asset (recoverable in the year the expense is actually paid). The DTA reverses when payment happens.
Yes, but only to the extent of 'virtual certainty supported by convincing evidence' (AS 22 para 17) or 'probable that taxable profit will be available' (Ind AS 12 para 34). This is a high bar — auditors typically require: (a) a strong order book or contractual revenue stream, (b) an evidence-backed business plan showing future taxable profits, (c) eight-year carry-forward window remaining (Section 72 — non-speculation losses) or four-year for speculation/unabsorbed depreciation losses (Sections 32, 73, 73A, 74, 74A). Continuing operating losses generally preclude DTA recognition. Unrecognised DTA is reassessed each balance sheet date.
Match the rate at which the temporary difference is expected to REVERSE. (1) If the company has opted into Section 115BAA: use 22% basic = 25.17% effective (with 10% surcharge + 4% cess). This option is irrevocable once exercised. (2) If a domestic company with turnover ≤ ₹400 cr in previous year: 25% basic = effective ~27% with surcharge and cess. (3) Default domestic rate: 30% basic = effective ~31.2% (small) or ~34.94% (with 12% surcharge for income > ₹10 cr). (4) New manufacturing under Section 115BAB: 15% basic = 17.16% effective. (5) Foreign company: 35% basic. Use the rate expected to apply when the deferred tax reverses, not necessarily the current rate.
Both standards account for income tax effects of temporary differences, but the framework differs. AS 22 is INCOME STATEMENT-based — uses 'timing differences' between book and taxable income. Ind AS 12 is BALANCE SHEET-based — uses 'temporary differences' between book carrying amount and tax base. Practical implications: (1) Ind AS 12 catches differences AS 22 misses, such as revaluation of PPE, business combinations, undistributed profits of subsidiaries. (2) Ind AS 12 requires deferred tax on initial recognition of certain assets — AS 22 does not. (3) Ind AS 12 prohibits discounting; AS 22 is silent. (4) AS 22 recognises DTA on losses only with 'virtual certainty'; Ind AS 12 uses 'probable'. Companies on Ind AS roadmap (₹250+ cr net worth) follow Ind AS 12; others follow AS 22.
MAT under Section 115JB is computed at 15% of book profit (plus surcharge and cess) when a company's regular tax liability is lower. MAT credit (excess MAT over regular tax) can be carried forward 15 years and set off when regular tax > MAT. The MAT credit is recognised as a Deferred Tax Asset under AS 22 / Ind AS 12, subject to the same recoverability test as carry-forward losses. Companies under Section 115BAA / 115BAB (concessional rates) are NOT subject to MAT and cannot avail MAT credit set-off. If a company switches into 115BAA, any accumulated MAT credit is forfeited.