MAT on INDAS co's

BackGround

As per Section 115JB (1) of Income Tax Act ,1961 in case of a company if the income-tax payable under the normal provisions of Income-tax Act,1961 is less than 18.5% of its book profit, then such book profit shall be deemed to be the total income of the assessee and tax shall be payable @18.5% ( add cess and surcharge, if applicable) on such book profit.

*Book Profit is the amount arrived at by making some additions/(deletions) as specified under section 115JB(2),to the profits calculated as per Schedule III of companies Act,2013

Where as on the other hand, the Central Government had notified the new Indian Accounting Standards (‘Ind AS’) vide the Companies (Indian Accounting Standards) Rules, 2015 which laid down a roadmap for implementation of Ind AS.

For an Ind AS compliant company profit & loss account is bifurcated into two parts:

  • Net profit or loss for the year;
  • Net Other Comprehensive Income (‘OCI’) (including items to be reclassified into profit & loss account in subsequent periods and items not to be reclassified into profit & loss account in subsequent periods)

Which results in the profits based on Ind AS compliant financial statements likely to be different from the profits based on existing Indian GAAP.

Abstracted MAT Provisions-IND AS companies

Considering that the book profit based on Ind AS compliant financial statements is likely to be different from the book profit based on existing Indian GAAP, Section 115JB provides a separate framework for computation of book profit for IND AS companies in the year of adoption and thereafter.

MAT computation for IND AS companies

For MAT calculation of IND AS companies, the starting point is the net profit as per the statement of profit and loss before considering any items forming a part of Other Comprehensive Income (OCI)

Further no adjustments to the net profits before other comprehensive income should be made other than those already specified under explanation 1 to section 115JB(2).

Net Profit Before Tax as per Statement of P&L XXX
Add/Less Effects of normal MAT provisions - Explanation 1 to Sec.115JB(2) XXX
Book profit to be used to compute MAT XXX

MAT Adjustments

*Year of convergence: The year in which IND AS are adopted by the company as per IND AS 101

** Transition amount: The aggregate of amounts adjusted in other equity (excluding capital reserve and securities premium reserve) on the convergence date.

Book profit to be used to compute MAT (As computed above) XXX
Annual Adjustments
Add/less 1. Amount credited/(debited) to P/L on distribution of non-cash assets to shareholders in demerger as per IND AS 10 (Appendix A) XXX
Add/less 2. Amount credited/(debited) to other comprehensive income under the head “items that will not be re-classified to profit/loss [ except the following 3,4,5 items which are to be included at the specified point of time ] XXX
Add/less 3. Changes in revaluation surplus for fixed assets & intangible assets- to be included in the year of realisation/ disposal / retirement or otherwise transferred XXX
Add/less 4. Gains or losses from investments in equity instruments measured at fair value through other comprehensive income -to be included in the year of realisation / disposal / retirement or otherwise transferred XXX
Add/less 5. Remeasurement of defined benefit plans (Ind AS 19)- To be included in book profits every year as the remeasurements gains and losses arise XXX
Transitional Adjustments
Add/less 6. All adjustments recorded in ‘Other Equity’ (excluding Capital Reserve and Securities Premium Reserve) on the transition date and which would otherwise never subsequently be reclassified to the profit and loss account, shall be included in the book profits, equally over a period of 5 years starting from the year of first time adoption of Ind AS. XXX
Add/less 7. Adjustments in respect of Investment in JV, Subsidiary & Associates measured at FV – to be included in the in the year of realization of such investment. XXX
Add/less 8. Adjustments on account of cumulative translation difference relating to foreign operation -to be included in the year of disposal of such foreign operations XXX
Add/less 9. All adjustments relating to retained earnings on the transition date, shall be included in the book profits, equally over a period of 5 years starting from the year of first time adoption of Ind AS. XXX
Total Book profit Computed as per Sec 115JB XXX

Note : Any deffered tax adjustments recorded in Reserves and Surplus on account of transition to IND AS shall be included

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

Srilekha.P

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Contact :

Ankit C Shetty

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