Hello to all colleagues and my dear friends. This article summarizes the provisions of Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) under Section 115JB and Section 115JC respectively. The article gives only the theoretical insights along with example for sound understanding of the provisions. So now let’s proceed the article.

Section 115JB- Minimum Alternate Tax (MAT)

The way the article will precede is as follows:

  • Background and Objective
  • Computation of Book Profit
  • Comparison of Normal Provisions and MAT Provisions through illustration
  • MAT Credit
  • Report of a “Accountant”

Background and Objective of MAT:

Basic objective behind introduction of MAT provisions was to levy tax on zero tax companies.

Zero tax companies are companies showing profits in books and also paying out dividends, however, not paying tax/marginal tax on account of various incentives( for example: incentives under chapter  VIA- C – in relation to certain incomes, etc). Therefore, Government wanted to get some tax from these companies also.

  • Section 115JB was introduced by Finance Act, 2000 i.e. AY 2001-02 – Provides for levy of tax on book profits at 15% (plus surcharge and cess as applicable)
  • Provisions applicable on companies except following companies:
    • The domestic companies which have opted for tax regimes under Section 115BAA or Section 115BAB;
    • Any income accruing or arising to a company from the life insurance business referred to in Section 115B;
    • Shipping company, the income of which is subject to tonnage taxation.
  • Section 115JB starts with “Not Withstanding anything contained in any other provisions of the Act”. Therefore it overrules entire Act and itself provides for computation of tax on book profits called “MAT”
  • MAT is payable only if tax as per normal provisions of the Act is less than 15% of “book profits”.
  • P&L account/statement is to be prepared in accordance with Schedule III of Companies Act, 2013(earlier Schedule VI of the companies Act, 1956); exception for banking, insurance, power generation companies, etc.

Note:

MAT is levied at the rate of 9% (plus 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.

Computation of Book Profit for MAT:

The following amount(s) need to be deducted or added to profit/loss as shown in profit & loss statement/account while computing book profit (Provided they have been already been credited to debited to the P&L statement/account respectively so as to nullify there effect)

Reductions Additions
Amount withdrawn from any reserve or provision Amount carried to any reserves by whatever name called (other than reserves relating to shipping business created under Section 33AC)
Amount of income covered by section 10 [except section 10(38)], section 11 or section 12 Amount of expenditure in relation to incomes covered by section 10 [except section 10(38)];
The amount of loss brought forward or unabsorbed depreciation whichever is less as per books of account. Note: Loss and unabsorbed depreciation to be considered in the books as at the commencement of the year Amounts of dividends paid or proposed to be paid;
  • Depreciation excluding depreciation on account of revaluation of assets.
  • Any amount withdrawn from the revaluation reserve and credited to P&L A/c, to the extent it does not exceed the amount of depreciation on account of revaluation of assets
  • Amount of depreciation as per tax provisions.
  • Balance in revaluation reserve relating to revalued asset on the retirement or disposal of such asset.
Amount of deferred tax, if any
  • Amount of  deferred tax or provisions thereof;
  • Amount of Income tax paid, payable or provision thereof;

However,

Income tax penalty or its interest .

Tax including Wealth tax penalty or its interest.

Penalties under other laws

Need not be added back

Profits of a sick industrial company subject to certain conditions Provisions for loss of subsidiaries
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 statement of profit and loss 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 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 statement of profit and loss and the income-tax payable on above income is less than the rate of MAT.

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 (if any, credited to the statement of profit and loss) 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 representing 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 statement of profit and loss, as the case may be;

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
Income by way of royalty in respect of patent chargeable to tax under section 115BBF Aggregate amount of unabsorbed depreciation and loss brought forward in case of:

a) A company and its subsidiary and the subsidiary of such subsidiary, where, the Tribunal, on an application moved by the Central Government under Section 241 of the Companies Act, 2013 has suspended the Board of Directors of such company and has appointed new directors who are nominated by the Central Government under Section 242 of the said Act;

A company against whom an application for corporate insolvency resolution process has been admitted by the Adjudicating Authority under Section 7 or Section 9 or Section 10 of the Insolvency and Bankruptcy Code, 2016

Expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF
Amounts set aside as provision for diminution in the value of assets; Example: Provision for bad debts to be added
Amounts set aside to provisions made for meeting unascertained liabilities,

However, provisions made on scientific basis are not to added back for Example: Provision for encashment of leave (SC Judgment: BHARAT EARTH MOVERS)

The amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such an asset if not credited to statement of profit and loss
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 statement of profit and loss as the case may be;

Comparison of Normal Provisions and MAT Provisions through illustration:

Particulars Normal Provisions MAT Provisions
Net Profit as per P&L Account 10,000 10,000
Add: Amount carried to General Reserve 1,000 1,000
Provision created for Warranty on scientific basis
Less: Dividend Income[Exempt under section 10(34) (1,500) (1,500)
Add: Loss on sale of depreciable assets 1,000
Net profit after above adjustments 10,500 9,500
Add: Depreciation in books 2,000 2,000
Less: Tax Depreciation/Tax Depreciation (3,000) (2000)
Gross Taxable Income/ Book profit 9,500 9,500
Less: Brought forward loss (10,500) 5000(Higher B/F loss than U. Dep.)
Loss to be carried forward 1000 4500
Tax/MAT (15%) Nil 702

MAT Credit

  • Credit of MAT paid can be carried forward for a period of 15 years immediately succeeding the year in which MAT credit becomes allowable(from the year when tax becomes payable under normal provisions of Act).
  • MAT credit allowable for a particular year is difference between tax computed as per normal provisions of Act and MAT payable with respect to book profits of that particular financial year.(Therefore, balance MAT credit allowable shall be carried forward to next financial year, see below example).
  • Interest under 234A / 234B is charged after MAT credit allowable is set off (as above) against tax payable.
  • MAT credit should be inclusive of surcharge and education cess.
AY Tax as per MAT provisions Tax as per normal provisions MAT Creditset off Tax payable MATCredit c/f
2018-19 2000 2500 Nil 2500 Nil
2019-20 2500 2100 Nil 2500 400
2020-21 1800 2100 300 1800 100

Therefore, MAT credit provisions ensure that the company will always pay a minimum tax called MAT.

Report of a “Accountant” for MAT:

  • Report from CA to be furnished electronically as per rule 12(2) in Form 29B to certify book profits are computed as per Sec.115JB.
  • Report to be obtained in all cases irrespective of the fact that company pays MAT or not (since MAT liability can be ascertained only after comparing normal tax liability with tax on book profits), however, disputable since Section 115JB (4) uses the words “Every Company to which this section applies” i.e. companies to which MAT actually becomes applicable.
  • No penalties are prescribed for not obtaining report or for not filing the same along with the tax return. However on a prudent basis the same should be filed.
  • Section 139(9) providing for defective return does not consider tax return to be defective if form 29B is not accompanied.

Section 115JC – Alternate Minimum Tax (‘AMT’)

Applicability for AMT

  • The provisions relating to AMT are applicable to non-corporate taxpayers claiming exemption under section 10AA and deductions under Chapter VIA-C – in relation to certain incomes (except section 80P- Deduction for Co-Operative Societies).
  • Section not applicable if adjusted Total Income (‘ATI’) of individual, HUF, AOP and BOI does not exceed Rs. 20 lakh.

Computation of Adjusted Total Income for AMT

Adjusted Total Income” means the Total Income or Net Income of the non-corporate assessee as increased by –

(a) Amount claimed as deduction by the non-corporate assessee under sections 80H to 80RRB other than section 80P; and

(b) Amount claimed as deduction by the non-corporate assessee under section 10AA: and

(c) deduction claimed, if any, under section 35AD as reduced by the amount of depreciation allowable in accordance with the provisions of section 32 as if no deduction under section 35AD was allowed in respect of the assets on which the deduction under that section is claimed.

Rate of AMT

AMT is levied @ 18.5% of adjusted total income. Surcharge and cess as applicable will also be levied.

However, AMT is levied @ 9% in case of a non-corporate assessee being a unit located in International Financial Services Centre and deriving its income solely in convertible foreign exchange. Surcharge and cess as applicable will also be levied.

AMT Credit

AMT credit = Tax paid as per AMT less tax payable under other provisions of the Act. AMT credit can be carried forward only for a period of 15 years after which it will lapse.

Hope you got the sound understanding of the concept of MAT & AMT.

(Author Shivashish Karnani is a  CA and can be reach out freely at ca.shivashish@gmail.com and on +91-9818472772)

(Republished with Amendments by Team Taxguru)

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13 Comments

  1. Ashok Binjola says:

    assessee claiming exemption of income from long term capital gain of shares under section 10(38) will be added back or not in case of AMT?
    it is clear that income under section 10(38) is added back in 115JB MAT.
    thanks in advance

  2. TUSHAR PARMAR says:

    Dear Tax Expert,

    Please do consider and give me a positive response of following matter,

    Suppose in current year 2015-16 i have book profit is Rs. 10,00,000/- and Accumulated Loss is Rs. 15,00,000/- then in next year i have book is Rs. 20,00,000/- then how much MAT TAX and lax laibility to pay to income tax department.

  3. CA.Shivashish Kumar says:

    Hi All, thanku for ur comments..

    Please note that i answer professional queries on mail only @ ca.shivashish@gmail.com
    Here are my 2 articles on

    Goods and Service Tax- A detailed explanation with examples

    Taxability of Softwares under the present Indirect Tax Laws vis-a-vis proposed under GST…

    https://taxguru.in/goods-and-service-tax/goods-service-tax-detailed-explanation-examples.html

    https://taxguru.in/goods-and-service-tax/taxability-software-present-indirect-tax-laws-proposed-gst-examples-india.html

    Please read and write your comments. Thanku very much.

  4. Nikhil says:

    Hello..

    I have one query.

    It is clear that depreciation excluding depreciation on account of revaluation of assets is deducted from book profit.

    During amalgamation or merger, assets are revalued. Does the depreciation on such revaluation of assets to be excluded from the depreciation amount for deducting it from book profit? I mean whether the depreciation on revaluation amount will be deducted from book profit or not ?

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