Question

Why is the current tax liability (income tax payable or current tax payable) at the end of a reporting period not usually equal to the Income tax expense for that period?

Answer 1

Ans:

Current tax liability can be different from income tax expesne for that period.

This could be because of these reasons:

1. Deferred tax assets: Deferred tax asset are those tax expenses on which taxes are not allowed to deduct in current period but will be allowed in future period. As per accounting standards we record these expenses in current period, but income taxes for the same will be allowed in future period. Example for same are:

• Depriciation in current year is higher in Books of account but lower as per income tax.
• Warranty expenses not allowed to be deducted unless paid.
• carry forward of losses of past years.

2. Deferred tax liabilities: Deferred tax liabilities are those tax expenses on which taxes are allowed to deduct in current period but will be provided in the books of accounts in future period. As per accounting standards we don't record these expenses in current period, but income taxes for the same are allowed in current period. Example for same are:

• Depriciation in current year is higher to be deducted as per income tax but will be provided in Books of accounts in future period.
• Revenue recognised completely in current period in case of insallment sale, however for income tax purpose only insallment received in current period is taxed, this will create tax liability in future.

For any query please ask in comment box, we are happy to help you. Also please don't forget to provide your valuable feedback. Thanks!