Deferred Tax Liability
Future income tax you will owe because tax depreciation is faster than book depreciation or similar timing differences. On the Balance Sheet.
In detail
Deferred tax arises when the tax office and the books measure the same item at different times. The Income Tax Act lets a company depreciate equipment faster than straight-line book depreciation, so taxable profit is lower today and higher later; the tax saved now but payable later is a Deferred Tax Liability. It is a year-end adjustment made with the auditor's working, debiting Deferred Tax, the expense, and crediting this ledger, and it reverses as the timing difference unwinds. Nothing is paid to the IRD from this account; actual tax due goes through Current Tax Liability. Small companies rarely need it, but leaving it out of an NFRS audit understates total tax expense.
Formula
Deferred Tax Liability = (Book carrying amount - Tax base of the asset) x Income tax rate
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Deferred Tax | Rs 8,000 | |
| Deferred Tax Liability | Rs 8,000 |
How to record it in BRAccount
- 01At Ashadh end, compare book written-down values with tax written-down values from the tax depreciation schedule.
- 02Multiply the taxable temporary difference by the company tax rate, 25 percent for most companies.
- 03Go to Invoicing > Journal Entry > New dated the year end.
- 04Debit Deferred Tax and credit Deferred Tax Liability with the increase; reverse the lines for a decrease.
- 05Submit. The entry below posts and the Balance Sheet shows the liability under Non-Current Liabilities.
When to use it
Post by Journal Entry at year end after your auditor computes the figure. The other side goes to Deferred Tax expense.
Example from the demo books
Dr Deferred Tax Rs 8,000, Cr Deferred Tax Liability Rs 8,000 at Ashadh end 2084 for extra tax depreciation on the laptop.