Deferred Tax Asset

Deferred tax Asset in financial statements denotes future tax assets stemming from temporary differences.This arises due to differences between financial statements prepared in accordance with the rules of the Companies Act and taxable profit based on provision of the Income Tax Act. Typical example is depreciation of fixed assets. These items generate deferred tax assets, reflecting taxes to be paid or recovered in the future. When company’s book profit is less than the taxable profit it will pay more tax now and pay less tax in future creating Deferred Tax Asset.