Definition
Deferred Tax Asset (DTA)
A Deferred Tax Asset is a balance-sheet item representing taxes a company has effectively prepaid or can recover in future, often from carried-forward losses.
DTAs arise from timing differences where a company pays more tax now but will pay less later, or from unused tax losses and credits it expects to set off against future profits. Under Ind AS 12, a DTA is recognised only if future taxable profit is probable.
A large DTA from accumulated losses, common at turnaround companies and once-stressed banks, can boost book equity. But if future profits look unlikely, the DTA must be written down, so analysts assess whether a company can realistically use it.
Related terms
- Effective Tax RateThe effective tax rate is the actual percentage of your total income that you pay as tax, after slabs, deductions, surcharge and cess.
- Deferred Tax Liability (DTL)A Deferred Tax Liability is a balance-sheet item representing taxes a company will owe in future due to timing differences between accounting and tax treatment.
- Set-Off and Carry Forward of LossesThese rules let taxpayers adjust losses against income of the same or future years, subject to conditions on the type of loss and how long it can be carried forward.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.