Which statement accurately describes tax provision, current tax payable, and deferred tax liability?

• A. The tax provision equals only current taxes; DTL is unrelated to timing differences.
• B. Current tax payable is the amount due for the period; DTL arises from permanent differences.
• C. The tax provision includes current and deferred taxes; current tax payable is the amount due for the period; DTL arises from taxable temporary differences.
• D. Deferred tax liability is the same as current tax payable.

Answer: (C)

The tax provision in the financial statements represents the total income tax expense for the period, and it includes two parts: current tax and deferred tax. Current tax payable is the amount owed to the tax authorities for the current period, based on taxable income and the tax rate. Deferred tax liability arises from taxable temporary differences—differences between the accounting and tax bases that will reverse in future periods and lead to higher taxes later. Permanent differences do not create deferred taxes because they don’t reverse over time. So the best description is that the tax provision includes current and deferred taxes; current tax payable is the amount due for the period; DTL arises from taxable temporary differences.