Implementation of Ind AS and its impact on the calculation of MAT u/s 115JB of the Income Tax Act, 1961.

From the FY 2016-17 Ind AS will be in place and have a big impact on the Financial Statement i.e. Net Profit of the company. Calculation of MAT depends upon the Net Profit as per the Books of Accounts after certain adjustments as defined in Section 115JB. So it can be derived that the adoption of Ind AS, the MAT liability of a company can go undergo a complete change.

Since, the provision related to adoption of Ind AS has come into picture, it has been a matter of debate that how much it will impact the MAT liability of the company. The recommendation of Lohia Committee to CBDT put a light on this scenario and also suggest that how this matter can be take care. A gist and impact of the same on MAT calculation can be summarized as follows:

After adoption of Ind AS, an Ind AS compliant company shall be required to bifurcate its profit and loss into the following two parts:

1. Net Profit/(loss) for the year.

2. Net other comprehensive income.

For the purpose of calculation of Book Profit u/s 115JB (MAT), the committee recommends as follows:

A. No further adjustments are required to be made to net profits (excluding net other comprehensive income) of Ind AS compliant companies other than those already specified u/s 115JB of the Act.

B. The Net other comprehensive income includes certain items that will permanently be recorded in reserves and hence never be reclassified to the statement of profit & loss account (included in the computation of Book Profit). The committee recommends that these item should be included in Book Profit for MAT purposes at an appropriate point of time. The following examples has been given in the report:

(i) Changes in revaluation surplus – to be included in book profits at the time of realization/disposal/retirement.

(ii) Re-measurements of defined benefit plans – to be included in book profits every year as the re-measurements gains and losses arise.

(iii) Gains and losses from investments in equity instruments designated at fair value through other comprehensive income – to be included in book profits at the time of realization.

C. Impact of First time adoption of Ind AS

An entity is required to make these adjustments directly in retained earnings/reserves at the time of transition to Ind AS.

(i) Those adjustment recorded in reserves and which would be subsequently be reclassified to the Profit and Loss account, should be included in book profits in the year in which these are reclassified to the profit and loss account.

(ii) All other adjustments recorded in retained earnings and which would otherwise never subsequently be reclassified to the profit and loss account, should be included in book profits in the year of first time adoption of Ind As.

Section 115JB already provides for certain adjustments for computation of book profit. The above adjustments would be subjects to the existing provision of Section 115JB.

Application of the above recommendation depends upon the acceptance of the same by the CBDT.

(Author may be contacted at navneet.singal@gmail.com )

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