Definition
Deferred tax is a tax amount that is due in the future but not paid yet because of differences between accounting income and taxable income. It arises when taxes are calculated differently in financial statements and tax rules.
Example
A company may show higher profit in its accounts but lower profit for tax purposes due to different depreciation methods. The tax that will be paid later because of this difference is called deferred tax.
Caution
Deferred tax does not mean tax is avoided; it is only postponed. Companies will have to pay it in the future, so investors should consider its impact on future cash flows.