MAT (Minimum Alternative Tax Section 115JB)

Minimum Alternative Tax (Section 115JB)

MAT Stands for Minimum Alternative Tax, he objective of introduction of MAT is to bring into the tax net “zero tax companies” which in spite of having earned substantial book profits and having paid handsome dividends, do not pay

Any tax due to various tax concessions and incentives provided under the Income-tax Law.

MAT was introduced in Finance Act, 1987 but later it was withdraw by the Finance Act, 1990 but again it was reintroduced in Finance Act, 1996.

Rate of MAT:

Rate of MAT is 15% + SC and CESS (as applicable).

MAT Rate is 9% + surcharge and cess (as applicable) in case of a company, Being a unit of an International Financial Services Centre and deriving its income solely in Convertible foreign exchange.

Liability:

The tax liability of a company will be higher of the following:

1. Tax liability of the company computed as per the normal provisions of the Income-tax Law, i.e., tax computed on the taxable income of the company by applying the tax rate applicable to the company. Tax computed in above manner can be termed as normal tax liability.

2. Tax computed @ 15% + surcharge and cess (as applicable) on book profit (manner of computation of book profit is discussed in later part). The tax computed by applying 15% + surcharge and cess (as applicable) on book profit is called MAT.

Example: Book Profit of ABT Ltd is 100000 and Taxable profit is 30000. Now tax liability will be higher of below

Applicability:

The provisions of MAT are not applicable on:

a) The domestic companies which have opted for tax regimes under Section 115BAA or

Section 115BAB ;( 115BAA – domestic companies have the option to pay tax at a rate of 22% plus SC of 10% and cess of 4%)

115BAB – Companies opting under this section 115BAB, shall be required to pay tax at the rate of 22% on the income which has not derived or incidental to manufacturing or production of article or thing and no deduction or allowance shall be allowed on such income)

b) Any income accruing or arising to a company from the life insurance business referred to in

Section 115B;

c) Shipping company, the income of which is subject to tonnage taxation.

MAT Credit:

MAT Credit can be carry forward for 15 Years and after that it will lapsed.

Example:

Tax Liability of ABT LTD as per normal provision is for FY 20-21 is 10 lakh and as per provision of MAT liability is 11 lakh. Here Company have to pay Tax as per MAT, as liability is greater under MAT but company is entitled to claim MAT credit of 1 Lakh and can adjust this credit till next 15 FY. (Whenever in any FY Tax Liability as per normal Provision becomes greater than MAT tax liability).

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 before the specified date referred to in Section 44AB. Audit report in Form No. 29B shall be filed electronically.