Deferred tax

The tax effect of timing differences between the accounts and the tax return. Companies depreciate an asset one way for shareholders and another way for the tax authority, and the difference has to be carried on the balance sheet until it unwinds.

A plant depreciated at ₹180 crore in the accounts but ₹300 crore for tax creates a ₹120 crore timing difference. At a 25% tax rate that is a ₹30 crore deferred tax liability: tax deferred today that will be paid in later years when the tax depreciation runs out.

A deferred tax asset is the mirror. Accumulated losses that can be set against future profits are an asset only if there will be profits to set them against, which is why the auditors test recognition of large deferred tax assets carefully.

The line also explains why the tax charge in the income statement and the tax paid in the cash flow statement rarely match. The charge includes the deferred component, which moves no money; the cash flow shows what was actually remitted. Comparing the two across five years is a cheap and effective quality check. A company whose charge consistently exceeds what it pays is deferring tax, usually through accelerated depreciation on new plant, and the deferral reverses once the capital spending slows.

Sudden movements in this line usually signal a change in expectations, not a change in trading.