MAT (Minimum Alternate Tax)

 

1.

Objective of levying MAT

2.

Basic provisions of MAT

3.

Applicability and non-applicability of MAT

4.

Meaning of Book Profit & its Computation

5.

MAT credit

6.

Adjustment of carried forward MAT credit

7.

Period for which MAT credit can be carried forward

8.

Report from chartered accountant

 

MAT stands for Minimum Alternate Tax. Initially the concept of MAT was introduced for companies and progressively it has been made applicable to all other taxpayers in the form of AMT. In this part you can gain knowledge about various provisions relating to MAT.

 

1.       Objective of levying 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. Due to increase in the number of zero tax paying companies, MAT was introduced by the Finance Act, 1987 with effect from assessment year 1988-89. Later on, it was withdrawn by the Finance Act, 1990 and then reintroduced by Finance (No. 2) Act, 1996, wef1-4-1997.

 

The objective of introduction of MAT is to bring into the tax net "zero tax companies" which in spite of having earned 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.

 

Since the introduction of MAT, several changes have been introduced in the provisions of MAT and today it is levied on companies as per the provisions of section 115JB.

 

2.       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, i.e., tax computed on the taxable income of the company by applying the tax rate applicable to the company. Tax computed in above manner can be termed as normal tax liability.

 

       Tax computed @ 18.5% (plus surcharge and cess as applicable) on book profit (manner of computation of book profit is discussed in later part). The tax computed by applying 18.5% (plus surcharge and cess as applicable) on book profit is called MAT.

 

Note:

MAT is levied at the rate of 9% (plus surcharge and cess as applicable) in case of a company, being a unit of an International Financial Services Centre and deriving its income solely in convertible foreign exchange.

 

Illustration

The taxable income of Essem Minerals Pvt. Ltd. computed as per the provisions of Income-tax Act is Rs. 8,40,000. Book profit of the company computed as per the provisions of section 115JB is Rs. 18,40,000. What will be the tax liability of Essem Minerals Pvt. Ltd. (ignore cess and surcharge) ?

**

The tax liability of a company will be higher of: (i) Normal tax liability, or (ii) MAT. Normal tax rate applicable to an Indian company is 30% (plus cess and surcharge as applicable). Tax @ 30% on Rs. 8,40,000 will amount to Rs. 2,52,000 (plus cess). Book profit of the company is Rs. 18,40,000. MAT liability (excluding cess and surcharge) @ 18.50% on Rs.18,40,000 will come to Rs. 3,40,400.

 

Thus, the tax liability of Essem Minerals Pvt. Ltd. will be Rs. 3,40,400 (plus cess as applicable) being higher than the normal tax liability.

 

Illustration

The taxable income of SM Energy Pvt. Ltd. computed as per the provisions of Income-tax Act is Rs. 28,40,000. Book profit of the company computed as per the provisions of section 115JB is Rs. 18,40,000. What will be the tax liability of SM Energy Pvt. Ltd. (ignore cess and surcharge)?

**

The tax liability of a company will be higher of: (i) Normal tax liability, or (ii) MAT. Normal tax rate applicable to an Indian company is 30% (plus cess and surcharge as applicable). Tax @ 30% on Rs. 28,40,000 will amount to Rs. 8,52,000 (plus cess). Book profit of the company is Rs.18,40,000. MAT liability (excluding cess and surcharge) @ 18.50% on Rs.18,40,000 will come to Rs. 3,40,400.

 

Thus, the tax liability of SM Energy Pvt. Ltd. will be Rs. 8,52,000 (plus cess as applicable), being higher than the MAT liability.

 

3.       Applicability and non-applicability of MAT

As per section 115JB, every taxpayer being a company is liable to pay MAT, if the Incometax(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 18.50% of its book-profit + surcharge (SC) + education cess (EC) + secondary and higher education cess.

 

From the above it can be observed that the provisions of MAT are applicable to every company whether public or private and whether Indian or foreign. However, as per section 115JB(5A) MAT shall not apply to any income accruing or arising to a company from life insurance business referred to in section 115B. Further, as per provisions of Section 115V-O the provisions of MAT will not apply to a shipping income liable to tonnage taxation, i.e., tonnage taxation scheme as provided in section 115V to 115VZC.

 

As per Explanation 4 to section 115JB as amended by Finance Act, 2016 with retrospective effect from 1/4/2001, it is clarified that the MAT provisions shall not be applicable and shall be deemed never to have been applicable to an assessee, being a foreign company, if—

 

(i)         the assessee is a resident of a country or a specified territory with which India has an agreement referred to in sub-section (1) of section 90 or the Central Government has adopted any agreement under sub-section (1) of section 90A and the assessee does not have a permanent establishment in India in accordance with the provisions of such agreement; or

 

(ii)        the assessee is a resident of a country with which India does not have an agreement of the nature referred to in clause (i) and the assessee is not required to seek registration under any law for the time being in force relating to companies.

 

4.       Meaning of Book Profit & its Computation

As per Explanation 1 to section 115JB(2) "book profit" for the purposes of section 115JB means net profit as shown in the P & L Account prepared in accordance with Schedule VI of the Companies Act [now Schedule III to the Companies Act, 2013] as increased and decreased by certain items prescribed in this regard. The items to be increased and decreased are as follows :

 

Computation of Book Profit

 

Particulars

Amount

Net profit as per Profit & Loss A/c prepared in accordance with Schedule VI to the Companies Act[now Schedule III to the Companies Act, 2013]

 

Add : Following items (if they are debited to the P & L A/c)

XXXXX

Income-tax paid/payable and the provision thereof (*)

 

Amounts carried to any reserves by whatever name called (Other than reserve specified under Section 33AC)

 

Provisions for unascertained liabilities

 

Provisions for losses of subsidiary companies

XXXXX

 

XXXXX

 

 

XXXXX

 

XXXXX

Dividends paid/proposed

 

Expenditure related to incomes which are exempt under section 10 [other than section 10(38)] section 11 and section 12

 

The amount or amounts of expenditure relatable to, income, being share of the taxpayer in the income of an association of persons or body of individuals, on which no income-tax is payable in  accordance with the provisions of section 86.

 

The amount or amounts of expenditure relatable to income accruing or arising to a taxpayer being a foreign company, from :

 

(a) the capital gains arising on transactions in securities; or

 

(b) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII

 

if the income-tax payable on above income is less than the rate of MAT

 

The amount representing notional loss on transfer of a capital asset, being share or a special purpose vehicle to a business trust in exchange of units allotted by that trust referred to in clause (xvii) of section 47 or the amount representing notional loss resulting from any change in carrying amount of said units or the amount of loss on transfer of units referred to in clause (xvii) of section 47

 

Expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF

XXXXX

 

 

XXXXX

 

 

XXXXX

 

 

 

 

 

 

 

XXXXX

 

 

 

 

 

 

 

XXXXX

 

 

 

 

XXXXX

Amount of depreciation debited to P & L A/c

 

Deferred tax and the provision thereof

 

Provision for diminution in the value of any asset

XXXXX

 

XXXXX

 

XXXXX

The amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such an asset if not credited to profit and loss account

 

The amount of gain on transfer of units referred to in

clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying  amount of the shares at the time of exchange where such shares are carried at a value other than the cost through profit or loss account, as the case may be;

XXXXX

 

 

 

 

 

XXXXX

Less : Following items (if they are credited to the P & L A/c)

 

Amount withdrawn from any reserve or provision if credited to P&L

account (**)

 

Incomes which are exempt under section 10 [other than section 10(38)] section 11 and section 12

 

 

(XXXXX)

 

 

(XXXXX)

Amount of depreciation debited to P&L account (excluding the

depreciation on revaluation of assets)

 

Amount withdrawn from revaluation reserve and credited to P&L account to the extent it does not exceed the amount of depreciation on revaluation of assets

 

(XXXXX)

 

 

(XXXXX)

The amount of income, being the share of the taxpayer in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86, if any such amount is credited to the profit and loss account

 

XXXXX

The amount of income accruing or arising to a taxpayer being a foreign company, from :

 

(a) the capital gains arising on transactions in securities; or

 

(b) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII

 

if such income is credited to the profit and loss account and the income tax payable on above income is less than the rate of MAT.

 

The amount (if any, credited to the profit and loss account ) representing

 

(a) notional gain on transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust referred to in clause (xvii) of section 47; or

 

(b) notional gain resulting from any change in carrying amount of said units; or

 

(c) gain on transfer of units referred to in clause (xvii) of section 47,

 

The amount representation notional gain on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through profit or loss account, as the case may be;

 

Income by way of royalty in respect of patent chargeable to tax under section 115BBF

 

Amount of brought forward loss or unabsorbed depreciation, whichever is less as per books of account

 

Profits of a sick industrial company till its net worth becomes zero/positive

 

 

 

 

XXXXX

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

XXXXX

 

 

 

 

 

 

 

 

XXXXX

 

 

XXXXX

 

 

XXXXX

Deferred tax, if credited to P&L account

(XXXXX)

Book profit to be used to compute MAT

XXXXX

 

(*) The amount of Income-tax shall include:

 

i. Any tax on distributed profits under section 115-O (dividend distribution tax - i.e., DDT) or tax on distributed income under section 115R;

 

ii. Any interest charged under this Act;

 

iii. Surcharge, if any, as levied by the Central Acts from time-to-time;

 

iv. Education Cess on Income-tax, if any, as levied by the Central Acts from time-to-time; and

 

v. Secondary and Higher Education Cess on Income-tax, if any, as levied by the Central Acts from time-to-time.

 

(**) Withdrawals made from reserves created or provisions made on or after the 1-4-1997, shall be deducted only if the book profit of the year of creation of such reserve has been increased by the amount transferred to such reserve or provisions (out of which the said amount was withdrawn).

 

For example, Governmental grants relating to depreciable assets are credited to special reserve (i.e., not to P&L account) in the year of receipt and a portion of such grant is transferred from that reserve to P&L account over the life of the asset in proportion to depreciation charged. In the year in which these grants were credited to special reserve, they had not been added to net profit for calculation of book profit subjected to MAT. Therefore, in the year of transfer to P&L the amounts so transferred shall not be reduced from net profit while calculating book profit for the purpose of MAT.

 

5.       MAT credit

As discussed in earlier part, a company has to pay higher of normal tax liability or liability as per MAT provisions. If in any year the company pays 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).The provisions relating to carry forward and adjustment of MAT credit are given in section 115JAA.

 

Illustration

The tax liability of Essem Minerals Ltd. for the financial year 2016-17 under the normal provisions of the Income-tax Act is Rs. 8,40,000 and the liability as per the provisions of MAT is Rs. 10,00,000. Will the company be entitled to claim any MAT credit in the subsequent year(s) as per the provisions of section 115JAA?

**

A company paying MAT is entitled to claim the credit of MAT paid in excess of normal tax liability. In this case the liability of Essem Minerals Ltd. for the year 2016-17 under the normal provisions is Rs. 8,40,000 and as per the provisions of section 115JB it is Rs. 10,00,000 (which is higher than normal tax liability) and, hence, the company has to pay Rs. 10,00,000, i.e., liability as per MAT provisions.

 

As per section 115JAA, if in any year a company pays its tax liability as per MAT, then it can claim MAT credit being the excess MAT paid over the normal tax liability. In this case, as the liability of MAT is higher, and, hence, the company will be entitled to claim MAT credit of Rs.1,60,000 (being excess of MAT over normal tax liability of Rs. 8,40,000).

 

6.       Adjustment of carried forward MAT credit

As discussed earlier, a company is entitled to claim MAT credit i.e. excess of MAT paid over the normal tax liability. The credit of MAT can be utilised by the company in the subsequent year(s). 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.

 

Illustration

The tax liability of Essem Energy Ltd. for the financial year 2016-17 under the normal

provisions of the Income-tax Act is Rs. 18,40,000 and the liability as per the provisions of MAT is Rs. 18,00,000. It has brought forward MAT credit of Rs. 2,00,000. Can the company adjust the MAT credit? If, yes then how much and what will be the tax liability of the company after adjustment of MAT credit?

**

MAT 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. In this case the liability as per the normal provisions of the Income-tax Act is Rs. 18,40,000 and the liability as per the provisions of MAT is Rs.18,00,000. Liability as per the normal provisions is more than liability as per the provisions of MAT and, hence, the company can adjust the MAT credit.

 

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 total income as per the normal provisions and liability as per the MAT provisions. Thus, after set off of MAT credit, the liability of the company cannot be less than liability as per the provisions of MAT. In this case, the liability as per MAT is Rs. 18,00,000, and, hence, after claiming set off of the MAT credit, the liability of company cannot be less than Rs. 18,00,000. Hence, out of the credit of Rs. 2,00,000 the company can claim credit of Rs. 40,000 only and the balance credit of Rs. 1,60,000 can be carried forward to next year(s).

 

7.       Period for which MAT credit can be carried forward

As discussed earlier, the company can carry forward the MAT credit for adjustment in

subsequent year(s), however, the MAT credit can be carried forward only for a period of 10 years after which it will lapse. In other words, if MAT credit cannot be utilised by the company within a period of 10 years (immediately succeeding the assessment year in which such credit was generated), then such credit will lapse. No interest is paid to the taxpayer in respect of such credit.

 

8.       Report from chartered accountant

Every company to whom the provisions of section 115JB applies is required to obtain a report from a chartered accountant in Form No. 29B certifying that the book profit has been computed in accordance with the provisions of section 115JB. The report should be obtained on or before due date of filing the return of income. Audit report in Form No. 29B shall be filed electronically.

 
Body-3
 
Get Updated ...
Tax Tutorials
E-Payment Of Direct Taxes
Filing Of Return Of Income
Interest for Delay in Filing the Return of Income [Section 234 A]
Interest for default in Payment of Advance Tax [Section 234B]
Provisions Of 'Income-Tax Law' Useful For Non-Residents
MAT (Minimum Alternate Tax)
AMT ( Alternative Minimum Tax)
Tax On Long-Term Capital Gains (LTCG)
Tax On Short-Term Capital Gains (STCG)
Exemption[ Section-54] For Capital Gains Arising On Transfer Of Residential House Property
Tax Treatment Of Gifts Received By An Individual Or HUF
Set Off And Carry Forward Of Loss Under The Income-Tax Act
Interest For Delay In Payment of TDS/TCS And For Non-Payment Of Tax Demanded
Tax Deduction/Collection Account Number (TAN)
How to apply for PAN ?
Refund Of Excess Tax Paid By The Taxpayer (Sections - 237 to 245 )
Presumptive Taxation Scheme of Section 44AD
Presumptive Taxation Scheme of Section 44ADA
Presumptive Taxation Scheme of Section 44AE
Deduction in respect of Life Insurance Premium, PPF, NSC, etc. [Section 80C]
Deduction in respect of Medical Insurance Premium [Section 80D]
Tax Deducted at Source (TDS) from Interest, other than Interest on Securities (Section-194A)
Tax Deducted at Source (TDS) from Interest on Securities (Section 193)
Late Filing Fees And Penalty For Failure To Furnish/Delay In Furnishing The TDS/TCS Statements
LIBRARY @ Tax Management
TAX & INVESTMENT GUIDE FOR "NRI"- Non-Resident Indians !
GUIDE & FAQ @ TAX
GRAPHICAL PRESENTATION @ TAX
TIPS & TRICKS @ TAX
MANAGERIAL & FINANCIAL DECISIONS @ TAX
5 GOLDEN RULES OF TAX PLANNING
FAMILY TAX PLANNING
DEDUCTIONS FROM YOUR INCOME
EXEMPTED INCOMES
HUF - FORMATION, MANAGEMENT & TAX PLANNING
COMPUTATION OF GROSS TOAL INCOME
INCOME TAX @ GLANCE
MULTIPLE KNOWLEDGEBASE ON TAX
51 TIPS ON TAX PLANNING
APPEALS UNDER INCOME TAX
ASSESSMENTS
PENALTIES UNDER IT DEPATMENTS
TAX SAVING SCHEMES
TAX READY RECKONER
TAX RATES
PROSECUTIONS UNDER INCOME TAX DEPARTMENT
TAXATION SYSTEM IN INDIA
CHARITABLE & RELIGIOUS TRUST - TAXATION
PRESCRIBED FORMS WITH with Section / Rules
KNOWLEDGE BASE !
New Topics @ Tax KnowledgeBase...
 
 

Most Popular Topics :

Corporate Tax ( Taxation in Companies)
FAQ on TDS on Salaries
FAQ on Taxable Income
FAQ on Filing of Income Tax Return
Graphical Chat Presentation of Provision of Motor Car / Other Vehicles [Rule 3(2)(A)&(B)]
'Appeals' Under Income Tax Act. 1961.
'Assessments' Under Income Tax Act. 1961.
List of Exempted Incomes (Tax-Free) Under Section-10
Income Under the Head ' Business and Professions' [Section 28 to 44]
Income Under the Head ' Capital Gain'
Income Under the Head ' House Property '[Section- 22 - 25 ]
Income Under the Head "Salary"
[Section 15-17]
Income Tax on 'Partnership Firms'
PENALTIES Under Income Tax Act. 1961.
Tax Saving Schemes for Individual -Instant Guide
New Tax Rates For FY 2017-18 & AY 2018-19
"Exempted Incomes" under Income Tax Act.
Charitable & Religious Trust :Formation, Registration, & Taxation
Hindu Undivided Family [HUF] - Formation, Management and Taxation
 

Most Popular Links :

Clubing of Income Deduction U/s 80C
Allowances Us-17(3) Exemption-Salary
Tax Amendment-2015 Taxable Income
Clubing of Income Tax Deductions
HUF Deduction HUF Investment
Gift by HUF HUF Tax Planning Tips
Tax Saving Schemes Tax Planning Tips
Refund of Tax Fringe Benefit Tax-FBT
Return Filing Assessment / Scrutiny
Notice from I.T. Dept. Incomes Types @ TDS
Exemptions-Tax Returns “Summon” U/s 131
'Black Money' @ I.Tax Big Gifts To Be Taxed
'Appeals' under I.Tax Assessment @ I.Tax
Exempted Incomes Capital Gain
Business & Professions House Property
Salaries @ I.Tax Partnership Firm
'Penalty' under I.Tax Act. Tax Ready Reckoner
Charitable Trust Useful Links @ I.Tax
 
Guide & FAQ on Tax Knowledgebase @ Taxation Income Tax @ Glance HUF - Formation, Planning & Taxation
Charitable & Religious TRUST NRI (Tax Planning,Saving,Investemnt) Budget 2017-2018 GST (FAQ, Law, Act. Rules, Schedule, Enrollment)
FAQs - Income Tax India Tax Tutorials    
________________________________________________________________________________________

Disclaimer:
All efforts are made to keep the content of this site correct and up-to-date. But, this site does not make any claim regarding the information provided on its pages as correct and up-to-date. The contents of this site cannot be treated or interpreted as a statement of law. In case, any loss or damage is caused to any person due to his/her treating or interpreting the contents of this site or any part thereof as correct, complete and up-to-date statement of law out of ignorance or otherwise, this site will not be liable in any manner whatsoever for such loss or damage.

The visitors may click here to visit the web site of Income Tax Department for resolving their doubts or for clarifications