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1.6 Current and Deferred tax
Current Tax:
- Current tax refers to the amount of income tax payable by a company or an individual on their taxable income for the current financial year.
- It is based on the applicable tax rates and the taxable income as per the prevailing tax laws.
- Current tax is a liability and is typically paid to the tax authorities within the same financial year.
Deferred Tax:
- Deferred tax refers to the tax consequences of temporary differences between the carrying amount of assets and liabilities in the financial statements and their tax base.
- Temporary differences arise when the timing of recognition of an item for accounting purposes differs from the timing of its recognition for tax purposes.
- Deferred tax can be either deferred tax assets or deferred tax liabilities, depending on whether the temporary differences will result in tax benefits or tax payments in the future.
- It is recognized in the financial statements in accordance with accounting standards and is adjusted over time as temporary differences reverse.
