The cash-tax reduction created by a tax-deductible expense. Interest tax shield = Interest Expense × t — the reason after-tax cost of debt is r_d · (1-t) in WACC and why levered firms can be more valuable than identical unlevered firms. In a DCF, taxes in UFCF are computed on EBIT (not actual taxes paid) precisely to avoid double-counting the interest tax shield — once in the cash flows and again in WACC. NOLs and depreciation also create tax shields: NOL Tax Shield = NOL × t; D&A Tax Shield = D&A × t.