Minimum Alternate Tax (MAT) [Section 115JB]

A MAT was introduced for the first time in the AY 1988-89. It was felt that due to various concession provided in Tax Laws big corporate groups become zero tax companies. Therefore, to counter this, as system of MAT was introduced.

The there is a difference between Two Profits i.e. Regular Profit and Book Profit.

  1. Regular Profit is the profit computed by applying the provisions of Tax Laws. Whereas Book Profit is computed on the basis of Schedule VI of the Companies Act, 1956.
  2. Rate of Depreciation is different in Tax Law and Companies Act.
  3. In Tax Laws real income is computed, whereas in Companies Act, deductions are allowed for provisions and reserves also which leads to computation of not real income but conservation income.
  4. Tax Laws allowed various incentives and deductions from Profits like deduction u/s 80IA , 80IB. This is not so in computation of Book Profit under the Companies Act.

1. Provision of MAT ( Minimum Alternate Tax) for payment of Tax by certain Companies [Section 115JB]

Tax payable for any Assessment year Cannot be Less than 18.5% of Book Profit:

Where in the case of a company, the income-tax payable on the total income as computed under the Income-tax Act, in respect of previous year relevant to the assessment year 2012-13 or thereafter is less than 18.5% of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income (book profit) shall be the amount of the income-tax at the rate of 18.5%.

Thus in case of a company income tax payable shall be higher of the following two amounts:

  1. Tax on total income computed as per the normal provisions of the Act by charging applicable normal rates and special rates if any income included in the total income of the company is taxable at special rates.
  2. 18.5% of book profit

MAT Rate to be 9% instead of 18.5% in case of a Unit Located in an International Financial Services Center [Section 115JB(7)]

Notwithstanding anything contained in section 115JB(1), where the assessee referred to therein, is a unit located in an International Financial Services Center and derives its income solely in convertible foreign exchange, the provisions of section 115JB(1) shall have the effect as if for the words “eighteen and one-half per cent” wherever occurring in that sub-section, the words “nine per cent” had been substituted.

Provisions of Section-115JB not to apply in certain cases..

The provisions of section 115JB shall not apply in case of the following:

  1. Any income accruing or arising to a company from life insurance business referred to in section 115B [Section 115JB(5A)].
  2. A foreign company, if—
    1. the assessee is a resident of a country or a specified territory with which India has an agreement referred to in section 90(1) or the Central Government has adopted any agreement under section 90A(1) and the assessee does not have a permanent establishment in India in accordance with the provisions of such agreement; or
    2. 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.

2. Book Profit – How to Determine [Section 115JB]

(A). Positive Adjustment : Amount to be Added Back if Debibted to Profit and Loss Account :

  1. Income-tax paid or payable and the provisions Income-tax, interest under the Income-tax Act, dividend therefor
  2. Amounts carried to any reserves, by whatever name called
  3. Amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities
  4. Amount by way of provision for losses of subsidiary companies
  5. Amount or amounts of dividends paid or proposed
  6. Amount of expenditure relatable to certain incomes (if such income is not subject to minimum alternate tax)
  7. (From the assessment year 2007-08), the amount of Depreciation
  8. Amount of deferred tax and the provisions therefor and the amount or amounts set aside as provision for diminution in the value of any asset.
    1. Amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset
    2. Amount of income/loss in the case of units referred to in section 47(xvii)

(B). Negative Adjustments –Amount to be Deducted from Net Profit :

  1. Amount withdrawn from reserves or provisions, if any such amount is credited to the profit and loss account.
  2. Income exempt from tax :
  • The following income, if credited to profit and loss account, shall be deducted—
    • long-term capital gain exempt under section 10(38) for the assessment years 2005-06 and 2006-07;
    • income exempt under section 10(23G) up to the assessment year 2004-05;
    • income exempt under other clauses of section 10;
    • income exempt under sections 10A and 10B up to the assessment year 2007-08;
    • income exempt under sections 11 and 12;
    • 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);
    • (in the case of a foreign company) interest, royalty or technical fees chargeable to tax under sections 115A to 115BBE, or capital gain arising on transactions in securities, if income-tax payable in respect of these incomes under normal provisions (other than provisions governing MAT) is less than the rate of MAT (applicable from the assessment year 2016-17); and
    • royalty in respect of patent chargeable to tax under section 115BBF.
  1. Depreciation (other than because of revaluation of assets) debited to profit and loss account (applicable from the assessment year 2007-08 onwards)
  2. 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].
  3. 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)
  4. 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)]
  5. Amount of profit eligible for deduction under sections 80HHC, 80HHE and 80HHF
  6. Profit of sick industrial unit
  7. The amount of deferred tax, if any such amount is credited to the profit and loss account.
  8. Amount of income/loss in the case of units referred to in section 47(xvii)

3. Analysing  Computation Of Total Income And Book Profit

Whether following expenditure are allowed as deduction in computingTotal IncomeBook Profit
Income Tax including corporate dividend taxNoNo
Wealth TaxNoYes
Income Tax or Wealth TaxNoYes
Any other penalty lived in any other lawNoYes
ReservesNoNo
Ascertained liabilityYesYes
Unascertained LiabilityNoNo
Provision for ascertained liabilityNoYes
Provision of Unascertained LiabilityNoNo
Loss of subsidiary Co.NoNo
Provision for losses of Subsidiary Co.NoNo
DividendNoNo
Whether deductions u/s 80C to 80U allowedYesNo
Whether Incomes referred to in section 10, 10A. 10B, 11 and 12 can be claimed as exemptYesYes
Whether incomes referred to in section 10(23G) and 10BA can be claimed as exemptYesNo

4. Minimum Alternate Tax (MAT) Rates for the A.Y. 2018-19 and 2019-20

Assessment Year 2018-19

 Domestic CompanyForeign Company
If Book Profit does not exceed Rs. 1 Crore : IT18.5(Note-1)IT18.5(Note-1)
SCSC
EC+SHEC0.555EC+SHEC0.555
TOTAL19.055TOTAL19.055
If Book Profit is in the range of Rs.1 Crore – Rs.10 CroreIT18.5(Note-1)IT18.5(Note-1)
SC1.295SC0.37
EC+SHEC0.59385EC+SHEC0.5661
TOTAL20.38885TOTAL19.4361
If Book Profit exceed Rs. 10 CroreIT18.5(Note-1)IT18.5(Note-2)
SC2.22SC0.925
EC+SHEC0.6216EC+SHEC0.58275
TOTAL21.3416TOTAL20.00775

Assessment Year 2019-20

 Domestic CompanyForeign Company
If Book Profit does not exceed Rs. 1 Crore : IT18.5(Note)IT18.5(Note)
SCSC
EC+SHEC0.74EC+SHEC0.74
TOTAL19.24TOTAL19.24
If Book Profit is in the range of Rs.1 Crore – Rs.10 CroreIT18.5(Note)IT18.5(Note)
SC1.295SC0.37
EC+SHEC0.7918EC+SHEC0.7548
TOTAL20.5868TOTAL19.6248
If Book Profit exceed Rs. 10 CroreIT18.5(Note)IT18.5(Note)
SC2.22SC0.925
EC+SHEC0.8288EC+SHEC0.777
TOTAL21.5488TOTAL20.202

Note -1 :

9%, if the assessee is a unit located in an International Financial Services Centre and derives its income solely in convertible foreign exchange.

Note -2 :

If book profit of a company exceeds Rs. 1 crore but does not exceed Rs. 10 crore, the minimum alternate tax cannot exceed the following: (Rs. 18.5 Iakh + book profit – Rs. 1 crore) + (EC + SHEC) or HEC. If, however, book profit exceeds Rs. 10 crore, the minimum alternate tax cannot exceed the following —

a.         in the case of domestic company, (Rs. 197.95 lakh + book profit – Rs. 10 crore) + (EC + SHEC) or HEC;

or

b.         in the case of a foreign company, (Rs. 188.7 lath + hook profit — Rs. 10 crore) + (EC + SHEC) or HEC.

5. Surcharge : on Minimum Alternate Tax (MAT) / Alternate Minimum Tax (AMT)

If Total Income is in the range of  >>>0— Rs 50 lakhRs.  50 lakh- 1 CroreRs. 1 Crore Rs. 10 CroreAbove Rs. 10 Crare
– Individuals/HUF/AOP/BOI/ Artificial Juridical PersonNil10%15%15%
– Firm/Co-Operative Society / Local AuthorityNilNil12%12%
– Domestic CompanyNilNil7%12%
– Foreign CompanyNilNil2%5%

Note :

The above surcharge is subject to a Marginal Relief