The situation
A plant has equipment carrying value ₹50 lakh and tax base ₹35 lakh. Use a hypothetical 25% enacted rate for the exercise.
Your task
Find the liability and its change if the difference narrows to ₹10 lakh.
Reveal step-by-step solution
Set up the problem
Taxable temporary difference = ₹50 − ₹35 = ₹15 lakh under the assumed recovery through use.
Work through the numbers
Deferred tax liability = ₹15 × 25% = ₹3.75 lakh. With a ₹10 lakh difference it is ₹2.50 lakh.
Interpret the result
The liability decreases ₹1.25 lakh under unchanged assumptions. Track current tax separately.
What to remember
Identify asset or liability, compare bases, determine direction, then apply the relevant reversal rate.