Leading whitespace (spaces and tabs) at the beginning of a logical line is used to compute the indentation level of the line, which in turn is used to determine the grouping of statements.
First, tabs are replaced (from left to right) by one to eight spaces such that the total number of characters up to and including the replacement is a multiple of eight (this is intended to be the same rule as used by Unix). The total number of spaces preceding the first non-blank character then determines the line's indentation. Indentation cannot be split over multiple physical lines using backslashes; the whitespace up to the first backslash determines the indentation.
Cross-platform compatibility note: because of the nature of text editors on non-UNIX platforms, it is unwise to use a mixture of spaces and tabs for the indentation in a single source file.
A formfeed character may be present at the start of the line; it will be ignored for the indentation calculations above. Formfeed characters occurring elsewhere in the leading whitespace have an undefined effect (for instance, they may reset the space count to zero).
The indentation levels of consecutive lines are used to generate INDENT and DEDENT tokens, using a stack, as follows.
Before the first line of the file is read, a single zero is pushed on the stack; this will never be popped off again. The numbers pushed on the stack will always be strictly increasing from bottom to top. At the beginning of each logical line, the line's indentation level is compared to the top of the stack. If it is equal, nothing happens. If it is larger, it is pushed on the stack, and one INDENT token is generated. If it is smaller, it must be one of the numbers occurring on the stack; all numbers on the stack that are larger are popped off, and for each number popped off a DEDENT token is generated. At the end of the file, a DEDENT token is generated for each number remaining on the stack that is larger than zero.
Here is an example of a correctly (though confusingly) indented piece of Python code:
def perm(l): # Compute the list of all permutations of l if len(l) <= 1: return [l] r =  for i in range(len(l)): s = l[:i] + l[i+1:] p = perm(s) for x in p: r.append(l[i:i+1] + x) return r
The following example shows various indentation errors:
def perm(l): # error: first line indented for i in range(len(l)): # error: not indented s = l[:i] + l[i+1:] p = perm(l[:i] + l[i+1:]) # error: unexpected indent for x in p: r.append(l[i:i+1] + x) return r # error: inconsistent dedent
(Actually, the first three errors are detected by the parser; only the
last error is found by the lexical analyzer -- the indentation of
return r does not match a level popped off the stack.)