What is the difference between provision for income tax and provision for deferred tax in tax expense

Difference between provision for income tax and deferred tax in balance sheet

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Provision for Income tax is a provision made for the current year taxation whereas deferred tax provision is made due to the difference that arises because of the difference in profits computed as per books and as per Income tax act.

One of the main reasons for the difference to occur as per the Books of Accounts & as per Income tax act is depreciation.

For example: As per IT act, depreciation on computers is 60% and as per Companies act the depreciation is 40%. Now assume the company decides to levy a deprecation of 20% on SLM method on the computers, then the depreciation charged would be as under:

Assume the value of the computer at the company is Rs.50,000.

Now if you observe the above table, the depreciation as per IT act will reduce considerably from the 3rd year onwards giving a higher profit figure to be declared in the Companies Income tax return.

The provision that is made for such higher profit that is going to occur in the future is the 'deferred tax' provision.


Thank you Venu for the precise explanation