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

9.

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

10.

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

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.

Assessment Year 2018-19

Assessment Year 2019-20

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.

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

Note :