Incidence of Deferred Tax Due to Depreciation: An Empirical Study

Deferred tax arises due to difference in the reported income and taxable income. In India it is not obligatory for corporations to provide for deferred tax which results in mismatch of tax liability and pre-tax income. In this study we look into the incidence of tax deferral due to difference in depreciation methods. A sample of thirty companies have been studied for four years. We have presented the extent of tax deferral and the resultant overstatement of reported income in the sample companies. The trend of overstatement over the years is also analysed and the implications are highlighted.