The computation of book profit under section 115JB is a complicated and vexed issue with diverse interpretations possible on various issues. These issues need to be clarified to reduce litigation before the appellate authorities, which is one of the aims of the Government.

The issues in question are as under:

1) Meaning of the terms “loss brought forward or unabsorbed depreciation” and “as per books of accounts – i.e. whether the intention is to prepare a separate computation for the purposes of computing brought forward losses, as explained in Circular 495 (dated 22 September 1987) which was in the context of section 115J of the Act.

2) The point of time at which loss or unabsorbed depreciation should be considered – whether at the end of the previous year or at the end of the relevant previous year in which the loss or unabsorbed depreciation arose?

3) Is book loss of a year to be set off against profits of earlier years?

4) If book loss of a year is set-off against reserves, will it be available for set-off?

5) Is the book loss of an amalgamating entity eligible for set off by the amalgamated entity?

6) Whether the brought forward loss and unabsorbed depreciation is to  be aggregated separately first and then these aggregates are to be compared to determine which one is lower?


Most of the aforesaid questions are directly or indirectly answered by Circular 495 dated 22.9.1987 w.r.t. erstwhile section 115J. It may be clarified that the said Circular is also applicable to current provisions of section 115JB as well.

For issues which are not covered by the said Circular, clarifications may be issued to explain the legislative intent.

Section 115JB – MAT implications for Ind AS compliant companies


Under Ind AS, prior period adjustments are not reflected in the financials in which error is discovered but earlier period financials are restated to which such errors pertain. There could be an issue if the return of income for such earlier year has already been filed and due date of filing revised return has lapsed.


It is suggested that a specific provision for revising return in the aforesaid situation may be provided or prior period adjustments may be allowed to be adjusted from book profit in the year in which errors are discovered.

Section 115JB – Minimum Alternate tax


It appears that Disallowance/Adding back of provision for diminution in value of any asset for computation of “book profit” is to be made in case of every class of company {clause (i) to Explanation 1 to section 115JB(2)}. However, in case of banking companies, the Government may reconsider applicability of the disallowance provision. This is because of the fact that in computation of business income under normal provision, deduction in respect of provision for bad debts is allowed under express provision contained in section 36(1)(viia) subject to the limit specified in the said section. If provision for bad debts is allowed as deduction in computation of business income under normal provision, there does not appear to be any cogent reason for disallowing the same in computation of “book profit” under section 115JB. Similarly, any special reserve created in accordance with the provisions of section 36(1)(viii) also does not require any disallowance in computation of book profit under section 115JB.


Clause (b) and (i) of Explanation 1 to section 115JB may be amended as follows

“(b) the amounts carried to any reserves, by whatever name called [other than a reserve specified under section 33AC and a reserve created and allowed in accordance with the provisions of section 36(1)(viii)]
(i) the amount or amounts set aside as provision for diminution in the value of any asset (other than provision for bad and doubtful debts allowed as a deduction under section 36(1)(viia))”

Rationalization of provisions of MAT for short term capital gains


As per section 115JB, 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 18.5% of its book profit, then such book profit shall be deemed to be the total income of the assessee and the tax payable on such total income shall be the amount of income tax at the rate of 18.5%. This income tax is further to be enhanced by surcharge (as applicable) and education cess(es) (@ 3%).

However, specified short term capital gains are taxable @ 15% under section 111A.

Due to this, companies under the MAT regime may not be able to get away with a lower tax rate of 15% on Short term capital gains.


It is suggested that in case of companies under the MAT regime, income tax liability for short term capital gains be the lower of the following:

1) Income tax computed as per provisions of Section 111A of the Income-tax Act.

2) Income tax computed as per provision of section 115JB of Income-tax Act.

Source-  ICAI Pre-Budget Memorandum–2018 (Direct Taxes and International Tax)

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Category : Income Tax (26774)
Type : News (13434)
Tags : Budget (1951) Budget 2018 (394) ICAI (2540) mat (125) Minimum Alternate Tax (96) section 115JB (98)

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