What is the minimum alternate tax mat in simple terms. Book profit under section 115jb the purpose of computing. The provisions of section 115jb provide for levy of mat on basis of book profits, i. Income tax is calculated on the income, and there are different ways to compute the income. Minimum alternate tax mat and alternate minimum tax amt. Mat is calculated as 15% of the book profit of the tax assesse. Based on the matching principle of accountancy, only expenses debited to the profit and loss account that had direct and proximate nexus with the exempt income credited to the profit and loss account should have been. The minimum alternate tax mat on companies challenges and way forward 09. Mat provisionsare applicable for a company if the tax payable as. Calculation of book profits for the purpose of mat. Under mat, such companies are made liable to pay to the government, by deeming a certain percentage of their book.
Before proceeding on how mat is calculated, first provisions related to mat calculation is important to learn. These adjustment can be made as per the following steps. Cs professionalcomputation of book profit from mat on. Section 115jb levies minimum alternate tax mat at 10% of book profits plus surcharge and cess thereon if such tax is higher than the tax payable under the normal provisions of the act.
Amount deductible in respect of remuneration of partners under section 40b with effect from the a. Accordingly, in view of the delhi high court judgment and substitution of explanation 4 of section 271 of the act with prospective effect, it is now a settled position that prior to 142016, where the income tax payable on the total income as computed under the normal provisions of the act is less than the tax payable on the book profits us. How should adjustments for service concession arrangements be treated for the purpose of computation of book profit under mat. Tax liability as per the mat provisions are given in sec 115jb18. For example, a company with rs 100 crore book profit is required to pay a minimum tax of rs 15 crore assuming 15 per cent mat rate. Book profit of the company under as per section 115jb is rs 12,00,000. Minimum alternative tax mat and computation of book. Tax on total income computed as per the normal provisions of the income tax act 30% on domestic companies and 40% on foreign companies. Mat provisions require book profit to be adjusted against lower of brought forward unabsorbed loss and unabsorbed depreciation and not merely restrict the amount setoff to the lower number august 21, 2018 in brief in a recent ruling1 of the ahmedabad bench of. Book profit definition, examples how to calculate book.
The minimum alternate tax mat on companies challenges. Minimum alternate tax part v computation of book profits. Prior period expenses allowable as a deduction from book. Mat credit, even though the carry forward period of credit has been allowed up to 15 years. If its normal tax liability after claiming deductions is rs 10 crore less than mat, it is required to pay the remainder rs 5 crore as mat and use mat credit equivalent to rs 5 crore to pay tax in the future.
Mat stands for minimum alternate tax, and it was launched to reduce if not to bridge the gap between the tax accountability as per income calculation and book profits. Act, 1961 in respect of any previous years, is less than 18. Minimum alternate tax mat check credits, calculation. The minimum alternate tax mat provisions under incometax act were introduced tocounter the situations wherein domestic companieswere making significant profits and declaring dividends on consistent basis,but were availing tax concessions and incentives in such a way as to minimize the payment of income tax. Broadly speaking book profit in context of mat means profit as shown in the profit and loss account adjusted by additions and deductions as provided in respective sections that is section115j, section115ja and section 115jb. Taxpayers methodology to set off and carry forward. Mat book profit computation 115jb for ind as compliant.
Cbdt issues faqs on computation of book profit for levy of. The ao reduced the claim as per books of account to inr18 lakh as against the claim of the taxpayer of inr55 lakh. Amount deductible as remuneration under section 40b if book profit is negative. Get indias best faculty video classes for best study at home. The term book profit has been defined in the respective sections. Mat calculation of book profit resolved caclubindia. The finance act, 2017 provided a separate formulae for computation of book profit for the companies that prepare financial statements under ind as. The objective behind mat or minimum alternate tax is to facilitate taxation of zero tax companies, by making such companies liable to pay a minimum tax based on their book profit. Under existing rules, book profit is calculated as. Computation of book profits by ind as compliant companies. Step 2 adjustment to net profit to convert it into book profit which are given under explanation 1 to section 115jb2 book profit is arrived at after making specified adjustments to the profit as shown in the statement of profit and loss so prepared. Accordingly, mat would be calculated using the profits as per the statement of profit and loss before other comprehensive income oci. This form of tax is applicable to all companies, including foreign companies that have established their presence in india.
Calculation of mat credit applicability of minimum. Calculation of book profits for the purpose of mat section 115jb. Provisions of mat for payment of tax by certain companies section 115jb tax payable for any assessment year cannot he less than 15% of book profit. The ao accordingly proposed to recast the profit and loss account for the purpose of computing book profit under section 115jb. Framework for computation of book profit for the purposes of levy of mat under section 115jb of the incometax act, 1961 for indian accounting standards ind as compliant companies may 03, 2016. Calculation of book profits for the purpose of matmaximum alternate tax. If you pick pat from the profit and loss ac then only you will be required to make adjustment for tax. As the profit and loss account is subject to notes and qualifications thereon, the profit shown in the profit and loss account may have to be adjusted with the. A question arises whether the amounts, which can be added or reduced from the book profit as prescribed in section 115j, 115ja and section 115jb are exhaustive or illustrative. Minimum alternate tax mat whereby a companys tax liability as per regular provisions is to be tested against a specified percentage of its book profits.
Setoff of business loss or unabsorbed depreciation under. Remuneration and interest to partners section 40b taxadda. Mat book profit one stop solution for gst, income tax. Income tax payable shall be the higher of the following amounts. Mat provisions require book profit off to the lower number. Complexity in computing the book profit under mat provisions. Under the provisions of the minimum alternate tax act, as per section 115jb, every company domestic or foreign is required to pay mat. The assessee during the relevant assessment year deducted prior period expenses of rs 96,94,693 from book profits while computing mat under section 115ja. Minimum alternate tax mat minimum alternate tax was introduced by finance act, 2000 provides for the levy of a minimum tax on book profits at 18. Minimum alternative tax is payable under the income tax act.
Minimum alternate tax is applicable for all companies except for companies involved in the life. Framework for computation of book profit for the purposes of levy of mat under section 115jb of the incometax act, 1961 for indian accounting standards ind as compliant companies. Minimum alternate tax mat us 115jb of income tax act, 1961. Conundrum on brought forward loss treatment under mat. Mat is not applicable to an assessee of a foreign country who comes under any of the. Minimum alternate tax mat in the case of companies, if tax payable on its total income as computed under the i. Book profit of the company computed as per the provisions of section 115jb.
The tax computed by applying 15% plus surcharge and cess as applicable on book profit is called mat. In this article, let us explore how tax planning under mat works. Government of india ministry of finance department of revenue central board of direct taxes. What is minimum alternate tax, mat news, budget 2020 news. Where in case of a company, the income tax payable on the total income as computed under the income tax act in respect of any previous year is less than 18. Before the commissioner of incometax appeal cita, the taxpayer contended that the action of the ao was in contravention of explanation 1iii to section 115jb of the act. Minimum alternate taxunder section 115jb minimum alternate tax as per section 115jb of income tax act as the name itself suggests that if for a company in the previous year the tax payable to the. Book profit can be referred to as the total amount. Mat is applicable to all companies including the foreign companies analysis of provision of section 115jb.
Adjustments on account of service concession arrangements would be included in the transition amount and also on an ongoing basis. Alternate taxation is a taxation concept that is applicable to both companies and individual taxpayers. The assessing authority viewed that as per the provisions of the companies act, prior year adjustments could not be reduced for arriving at the net profit of that particular year. Where in the case of a company, the incometax payable on the total income as computed under the incometax act, is less than15% of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax. Minimum alternate tax mat and alternate minimum tax amt are provisions introduced in the income tax legislation to ensure that taxpayers who avail of various deductions and exemptions do not escape the liability to pay at least a minimum amount of income tax. So far, the tax liability under mat provisions stood at 18. Specifically, in case of a company, there are two different ways to compute income. Profit on sale to be considered for mat 819 819 question 11. Mat is levied at the rate of 9% plus surcharge and cess as applicable in case of a company.
Calculation of mat credit applicability of minimum alternate tax. Minimum alternative tax mat and its computation of book profit and mat credit under section 115jb of income tax act, 1961. Minimum alternate tax mat is a tax effectively introduced in india by the finance act of 1987, vide section 115j of the income tax act, 1961 it act, to facilitate the taxation of zero tax companies i. Cbdt clarifies on computation of book profit for the.
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