Definition
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.
A DTL arises when a company recognises income earlier, or expenses later, for accounting than for tax, deferring tax to future periods. The most common source is depreciation claimed faster for tax than for books, lowering today's tax but raising it later.
Under Ind AS 12, DTLs are recognised for taxable temporary differences. They sit as non-current liabilities and unwind as the timing differences reverse. The interplay of DTAs and DTLs explains why a company's effective tax rate can differ from the statutory rate.
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.
- DepreciationDepreciation is the systematic allocation of the cost of a tangible fixed asset over its useful life, reflecting wear and obsolescence as an expense.
- 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.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.