Section 115JAA

Introduction - Basic Provisions oF MAT

  • As per the concept of MAT, the tax liability of a company will be higher of the following:
    • Tax liability of the company computed as per the normal provisions of the Income-tax Law which can be termed as the normal tax liability
    • Tax computed @ 18.5% (plus surcharge and cess as applicable) on book profit which is called MAT
  • The tax credit to be allowed u/s 115JAA(1A) shall be the difference of the tax paid for any assessment year u/s 115JB(1) and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of this Act
  • The credit can be adjusted in the year in which the liability of the company as per the normal provisions is more than the MAT liability. The set off in respect of brought forward MAT credit shall be allowed in the subsequent year(s) to the extent of the difference between the tax on its total income as per the normal provisions and as per the MAT provisions.

Illustrations:

The tax liability of ABC Ltd are as follows

Normal Tax Provisions* MAT*
AY 2015 - 16 85,000 50,000
AY 2016 - 17 1,10,000 90,000
AY 2017 - 18 1,30,000 1,50,000

*Inclusive of (EC+SC)

By applying the above explained provisions, the following are the tax liabilities for respective years, MAT credit to be carried forward and MAT credit to be availed:

AY 2015 - 16 AY 2016 - 17 AY 2017 - 18
Tax Liability u/s 115JB(1) 85,000 1,10,000 1,50,000
MAT Credit Entitlement 35,000 20,000
MAT Credit Utilized 20,000
Final Tax Liability 85,000 1,10,000 1,50,000

Amendment Of Section 115JAA WEF 01/04/2018 (Finance Act 2017)

  • In sub-section (2A), the following provison shall be inserted, namely

    "Provided further that where the amount of Foreign Tax Credit allowed against the tax payable under the provisions of sub-section (1) of section 115JB exceeds the amount of such tax credit admissible against the tax payable by the assessee on its income in accordance with the other provisions of this Act, then, while computing the amount of credit under this sub-section, such excess amount shall be ignored."

    Interpretation:

    Illustrations 1 MAT Normal Tax Provisions
    Tax Payable(EC + SC) (a) 15 10
    Foreign Tax Credit (b) 10 10
    FTC Admissible Against Tax Payable (c) 10 10
    Excess of FTC Admissible Against MAT & FTC Allowed Against Normal Tax Provisions to be Ignored (d = difference of c) 0
    FTC Admissible u/s 115AA(2A) (e = c - d) 10
    Tax Payable u/s 115JB(1) (a - e) 5
    Illustrations 3 MAT Normal Tax Provisions
    Tax Payable(EC + SC) (a) 15 7
    Foreign Tax Credit (b) 11 11
    FTC Admissible Against Tax Payable (c) 11 7
    Excess of FTC Admissible Against MAT & FTC Allowed Against Normal Tax Provisions to be Ignored (d = difference of c) 4
    FTC Admissible u/s 115AA(2A) (e = c - d) 7
    Tax Payable u/s 115JB(1) (a - e) 8
  • The company can carry forward the MAT credit for adjustment in subsequent year(s), for a period of 15 years after which it will lapse. In other words, if MAT credit cannot be utilised by the company within a period of 15 years (immediately succeeding the assessment year in which such credit was generated), then such credit will lapse.

115JAA Amemdment as per Finance Act, 2017

Increase in time limit for carry forward of MAT credit from 10 Asssessment years to 15 Assessment years.

Old Provisions New Provisions*
AY MAT Entitlement MAT Credit Utilized MAT c/f MAT Entitlement MAT Credit Utilized MAT c/f
2006 - 07 50,000 50,000 50,000 50,000
2007 - 08 55,000 1,05,000 55,000 1,05,000
2008 - 09 15,000 90,000 15,000 90,000
2009 - 10 87,000 1,77,000 87,000 1,77,000
2010 - 11 10,000 1,67,000 10,000 1.67,000
2011 - 12 45,000 2,12,000 45,000 2,12,000
2012 - 13 90,000 3,02,000 90,000 3,02,000
2013 - 14 54,000 3,56,000 54,000 3,56,000
2014 - 15 25,000 3,81,000 25,000 3,81,000
2015 - 16 35,000 4,16,000 35,000 4,16,000
2016 - 17 48,000 4,39,000 48,000 4,64,000
2017 - 18 79,000 4,63,000 79,000 5,43,000
2018 - 19 10,000 4,53,000 10,000 5,33,000
2019 - 20 58 000 4,34,000 5,91,000
2020 - 21 28,000 4,62,000 28,000 6,19,000
2021 - 22 40,0000 4,57,000 40,000 6,44,000

However there is no clarity regarding carry forward and set off of MAT credit in cases where the ten year period has expired on or before AY 2016-17 but the fifteen year period has still not expired. The MAT credit of AY 2006-07 lapses in AY 2016-17 as per the old provisions. Finance Act 2017, amends section 115JAA(2A) for carry forward of MAT credit for 15 assessment years wef AY commencing on or after 1/4/2018. Accordingly, though the 10 year period for the MAT credit of AY 2006-07 expires on AY 2016-17 and the 15 year period lapses on AY 2021-22, the question arises whether the benefit which has already lapsed will get a new lease of life. Explanation in section 115JAA or by way of an Explanatory circular be issued to the effect that such benefit is available even in cases where the ten year period expired before A. Y.2017-18 but the fifteen year period has still not expired.

Disclaimer:"The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of particular situation."

Prepared By

Chinmayi M

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Contact :

Ankit C Shetty

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