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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.
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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, prepaid expenses, revaluation reserve, etc. MAT credit belongs here only if it was banked by 31 March 2026 — no fresh credit accrues from tax year 2026-27.
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.
Deferred tax is measured at the rate expected to apply when the difference reverses — the enacted rate under AS 22, the enacted or substantively enacted rate under Ind AS 12. That is not always this year's rate, and it is the single most common measurement error on an Indian deferred tax schedule. These are the effective corporate rates the calculator above offers, each being the base rate grossed up for surcharge and the 4% Health & Education Cess:
| Which company | Provision | Base | Surcharge | Cess | Effective |
|---|---|---|---|---|---|
| Domestic company on the concessional regime | s.115BAA | 22% | 10% | 4% | 25.17% |
| Domestic company, turnover ≤ ₹400 cr | Finance Act schedule | 25% | 7% | 4% | 27.82% |
| Domestic company, all others | Finance Act schedule | 30% | 0% | 4% | 31.20% |
| New manufacturing company | s.115BAB | 15% | 10% | 4% | 17.16% |
The 25% row applies where turnover did not exceed ₹400 crore in FY 2023-24 — the specified prior year for AY 2026-27, not the immediately preceding one. The 30% row is shown without surcharge; add 7% from ₹1 crore to ₹10 crore of total income and 12% above ₹10 crore, which lifts the effective rate to 33.38% and 34.94%. A foreign company with a permanent establishment in India is taxed at 35% base, reduced from 40% by the Finance (No. 2) Act 2024. Companies opting into s.115BAA or s.115BAB pay a flat 10% surcharge whatever their income.
This matters more than the rate cut. Under the old law, moving into the concessional regime forfeited accumulated MAT credit. Under the new law that is the only regime in which the credit can be used at all. A schedule rolled forward from last year will get this exactly backwards.
| Year | Provision | MAT rate | Credit |
|---|---|---|---|
| AY 2026-27 (income of FY 2025-26) | s.115JB, Income-tax Act 1961 | 15% of book profit | Carries forward 15 years; recognisable as a DTA subject to the recoverability test |
| Tax year 2026-27 onward (from 1 Apr 2026) | s.206, Income-tax Act 2025 | 14% of book profit | FINAL TAX in the old regime — no fresh credit accrues. Credit banked to 31 Mar 2026 is usable only in the concessional regime, capped at 25% of regular tax a year |
Practical effect on a deferred tax schedule: stop recognising a DTA for MAT credit arising in tax year 2026-27 or later, because none arises; and re-test any existing MAT-credit DTA against both the 25% annual set-off cap and the regime in which it can actually be used. A difference reversing in tax year 2026-27 or later is measured at 14%, not 15%. This is a Finance Act 2026 amendment to s.206 of the Income-tax Act, 2025 and it is recent — confirm your own position on incometax.gov.in before finalising accounts.
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Ask the AI agent — freeAS 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.
Deferred tax is not a one-off sum — it is a schedule that has to survive into next year, when the differences reverse and someone has to remember why. Richify's AI agent keeps depreciation, 43B disallowances, provisions and carry-forward losses tracked across periods, answers questions about them in plain English, and carries the numbers straight into your advance tax and ITR planning. Free to start, no sign-up to try the tools.
Get Richify freePrimary sources: Income Tax Act 1961 ss. 115BAA, 115BAB, 115JB, 32, 43B and 36(1)(vii); Income-tax Act 2025 s. 206 as amended by the Finance Act 2026, which cut MAT to 14% from 1 April 2026, made it a final tax in the old regime and confined banked credit to the concessional regime at a 25% annual cap; Finance (No. 2) Act 2024, which cut the foreign company rate to 35%; ICAI AS 22 "Accounting for Taxes on Income" and Ind AS 12 "Income Taxes"; Companies Act 2013 Schedule II. Last updated 9 September 2026 — corporate rates, MAT and the credit rules changed this financial year; confirm your own position on incometax.gov.in before finalising accounts.
Deferred 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 the SPECIFIED prior year — FY 2023-24 for AY 2026-27, not the immediately preceding year: 25% basic = 27.82% effective (25% × 1.07 surcharge × 1.04 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.
The answer changed on 1 April 2026, and a schedule rolled forward from last year will get it backwards. FOR AY 2026-27 (income of FY 2025-26 — the return being filed now): MAT is 15% of book profit under Section 115JB of the Income-tax Act 1961 where regular tax is lower; the credit, being the excess of MAT over regular tax, carries forward 15 years and is recognised as a Deferred Tax Asset subject to the same recoverability test as carry-forward losses; and companies under Sections 115BAA / 115BAB are outside MAT, so switching in forfeits accumulated credit.
FROM TAX YEAR 2026-27 (FY 2026-27, the year now running), MAT sits in Section 206 of the Income-tax Act, 2025 and the Finance Act 2026 rationalised it: the rate falls to 14%, and MAT in the old regime becomes a FINAL TAX, so no fresh MAT credit accrues to any domestic company. Credit banked up to 31 March 2026 survives — but the set-off rule inverts.
It can now be used ONLY in the concessional regime, capped for domestic companies at 25% of regular tax liability in a year, and for foreign companies at the excess of normal tax over MAT. So the move into 115BAA that used to destroy the credit is now the only way to use it.
Two consequences for deferred tax: stop recognising a DTA for MAT credit ARISING in tax year 2026-27 or later, because none arises; and re-test any existing MAT-credit DTA against the 25% annual cap and against the regime it can actually be used in. Since deferred tax is measured at the rate expected on reversal, a reversal falling in tax year 2026-27 or later is measured at 14%, not 15%.
This is recent law — confirm your position on incometax.gov.in before finalising accounts.