Minimum Alternate Tax
Objectives of MAT
At times it may happen that a taxpayer, being a company, may have generated income during the year, but by taking the advantage of various provisions of Income-tax Law (like exemptions, deductions, depreciation, etc.), it may have reduced its tax liability or may not have paid any tax at all.
The Objective of introduction of MAT is to bring into the tax net “Zero Tax Companies” which is spite of having earning substantial book profits and having paid handsome dividends, do not pay any tax due to various tax concessions and incentives provided under the income tax law.
Applicability and Non applicability of MAT
As per section 115JB, every taxpayer being a company is liable to pay MAT, if the Income tax (including surcharge and cess) payable on the total income, computed as per the provisions of the Income-tax Act in respect of any year is less than 15% of its book profit + surcharge (SC) + education cess (EC) + secondary and higher education cess.
However, the provisions of MAT are not applicable on
Note: Further with an explanation MAT provisions shall not be applicable to a foreign company, whose total income comprise of PFGB referred to in section 44AB, 44BB, 44BBA or 44BBB and such income has been offered to tax at the rates specified in those sections.
Provisions of MAT
Note: MAT is levied at the rate of 9% (Plus surcharge and cess as applicable) in case of company, being a unit of an International Financial Services Centre and deriving its income solely in convertible foreign exchange.
A company of turnover 500 crores having Taxable income: 8,40,000/- and Book profit: 18,40,000/- (Ignore surcharge and cess)
As we discussed earlier the tax liability is higher of
i) Normal tax liability= 8,40,000*30% = 2,52,000
ii) MAT= 18,40,000*15%= 2,76,000
Thus, the tax liability will be Rs. 2,76,000/-
Book profit for the purpose of section 115JB means net profit as shown in statement of profit and loss prepared in accordance with schedule III of the Companies Act, 2013 as increased and decreased by certain items prescribed in this regard.
Following items shall be added (if they are debited to statement of profit and loss)
1) Income tax paid or payable, and the provision, therefore.
2) The amounts carried to any reserves, by what ever name other than reserve specified under section 33AC.
3) Amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities.
4) Amount of expenditure relatable to certain incomes (if such income is not subject to minimum alternate tax)
5) Amount of income/loss in the case of units referred to in Section 47(xvii)
6) Provision for loss of subsidiary companies.
7) Dividends paid or proposed.
8) Expenditure related to exempt income u/s 10/11/12 [except section 10(38)].
9) Depreciation amount.
10) Amount of Deferred tax and provision, therefore.
Following items shall be deducted (if they are Credited to statement of profit and loss)
1) Amount withdrawn from any reserve or provision.
2) Income exempt u/s 10/11/12 [except 10(38)]
3) The amount withdrawn from revaluation reserve and credited to statement of profit and loss, to the extent it does not exceed the amount of depreciation on revaluation of asset.
4) The amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.
5) The amount of deferred tax, if any such amount is credited to the profit and loss account.
6) share of profit from an AOP on which no income-tax is payable in accordance with the provisions of Section 86 (applicable from the assessment year 2016-17);
7) Royalty in respect of patent chargeable to tax under Section 115BBF.
8) Depreciation (other than because of revaluation of assets) debited to profit and loss account (applicable from the assessment year 2007-08 onwards)
9) Amount withdrawn from revaluation reserve credited to profit and loss account to the extent it does not exceed the amount of depreciation on account of revaluation of assets [applicable from the assessment year 2007-08].
10) Aggregate amount of unabsorbed depreciation and loss brought forward in case of a company against whom an application for corporate insolvency resolution process has been admitted by the Adjudicating Authority under Section 7/9/10 of the Insolvency and Bankruptcy Code (applicable from the assessment year 2018-19)
11) Amount of loss (before depreciation) brought forward or unabsorbed depreciation, whichever is less, as per books of account [not being a company which is covered by Item 12A (supra)]
12) Amount of profit eligible for deduction under Sections 80HHC, 80HHE and 80HHF
13) Profit of sick industrial unit
14) The amount of deferred tax, if any such amount is credited to the profit and loss account.
15) Amount of income/loss in the case of units referred to in Section 47(xvii)
Note: The above adjustments are for AS compliant companies. Meaning of book profit for INDAS compliant companies is different.
If in any year the company pays a liability as per MAT, then it is entitled to claim credit of MAT paid over and above the normal tax liability in the subsequent year(s). and MAT credit can be carried forward for 15 assessment years. And No interest is paid to the taxpayer in respect of such credit.
Adjustment of carried forward of MAT credit:
If a company is entitled to claim MAT credit, then 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.
Every company to whom the provisions of section 115JB applies is required to obatin a report from a Chartered Accountant in Form 29B certifying that the book profit has been computed in accordance with the provisions of section 115JB
The report should be obtained before the specified date referred to in section 44AB and The Audit report in Form 29B shall be filed electronically
Disclaimer:“Information contained herein is for informational purposes only and should not be used in deciding any particular case. The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts have been made to provide authentic information, it is suggested that to have better understanding and obtaining professional advice after thorough examination of particular situation.”