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The fundamental difference between DTL and DTA finance terms is the computed income difference in accordance with the provisions of varying laws. While a firm, business, organization, agency, or establishment is computing income for tax liability calculation purposes, the provisions of the Income Tax Act of varying nations are applicable. Conversely, the principles of financial accounting become applicable when computing income for disclosure inside financial statements. Some key differences that arise as a result of the application of varying provisions of the law are actually temporary differences, i.e. the differences that become eliminated over a certain time period. The temporary differences are recognized and carried forward in books of accounts, accounted for, and accordingly, DTL a/c and a DTA a/c are both created. The major differences between the two include;

Deferred Tax Liability – DTL

1. When profits as per a company, business, organization, or agency’s books of accounts is greater than its profits as per recognized tax laws, then such an establishment is required to create a deferred tax liability.

2. The creation of any deferred tax liability by any establishment is subject to it paying the MAT – minimum alternative tax.

3. The journal entry for DTL is profit & loss A/C being debited to the DTA A/C.

4. The DTL entry is then shown under the heading of ‘non-current liability’ in an establishment’s final balance sheet.

Deferred Tax Asset – DTA

1. The DTA finance definition pretty much encompasses what deferred tax asset is all about. When profits as per the book of the accounts of a company, business, organization, or agency is less than its profits as per recognized tax laws, such an establishment is required to create a deferred tax asset.

2. The creation of any deferred tax asset is subject to principles of real prudence.

3. The DTA entry in the journal of such establishments if the deferred tax asset A/C being debited to the deferred tax liability A/C.

4. The deferred tax asset entry is then shown under the ‘non-current assets’ heading of the establishment’s final balance sheet in this case.

It is quite crucial to indicate that both the deferred tax liability and the deferred tax assets are created only for the purpose of indicating temporary differences. The differences are quite temporary in nature, and with the passage of time, the impact that is brought about by the differences becomes completely eliminated. In addition, as per the standards of deferred tax accounting, it is not allowed that the amount of deferred tax should be discounted to its current value. Therefore, while doing the calculation of your own deferred tax, you will have to ignore the time value of money and so, the differences in the timing become reversed.

These are the key differences between deferred tax liability (DTL) and deferred tax asset – DTA finance terms that you should know. If you will like to get further information or have any questions as regards deferred tax, just contact the foremost experts. They are professionals that understand their job quite well. In addition, they are always ready to assist with whatever kind of information you might need. So, just contact one among the foremost experts.