12-10-2010, 09:10 PM
in lay mans terms
there are somethings that the tax authorities allows (temporary difference) and somethings that they dont (permanent difference)..
which they do allow, but the timings differ from your accounting treatment, this is temporary difference.. one example is where you follow accrual basis but the tax is charged on cash basis.. so for instance, if you sold on credit, you will book a sale and should charge the tax.. however, the tax authorities will not charge tax until you have received the payment.. there is just a temporary difference in the time you are charging and the time they will charge..
this is one instance which gives rise to deffer tax.. the difference between the carrying value of an asset/liability and its tax base.
deffer tax is not as simple as i tried to put but i just tried to make u understand in simple terms..
hope this would help
Rgds,
there are somethings that the tax authorities allows (temporary difference) and somethings that they dont (permanent difference)..
which they do allow, but the timings differ from your accounting treatment, this is temporary difference.. one example is where you follow accrual basis but the tax is charged on cash basis.. so for instance, if you sold on credit, you will book a sale and should charge the tax.. however, the tax authorities will not charge tax until you have received the payment.. there is just a temporary difference in the time you are charging and the time they will charge..
this is one instance which gives rise to deffer tax.. the difference between the carrying value of an asset/liability and its tax base.
deffer tax is not as simple as i tried to put but i just tried to make u understand in simple terms..
hope this would help
Rgds,
