Hello to all colleagues and my dear friends. This is my first article which summarizes the provisions of Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT). The article gives only the theoretical insights along with example for sound understanding of the provisions. In my next article will share practical issues such as arising on amalgamation, applicability of section 14A, etc along with implication of new Companies Act, 2013 on MAT and its comparison to Companies Act, 1956. So now I shall proceed for the article.

The way the article shall 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

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 18.5%.
  • Provisions applicable on companies except companies carrying on life insurance business.
  • 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 18.5% 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.

Computation of Book Profit

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Amount withdrawn from any reserve or provision Amount carried to any reserves by whatever name called (other than reserves relating to shipping business created under Section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

  • 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)

Profits of a sick industrial company subject to certain conditions Provisions for loss of subsidiaries

 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 (18.5%) Nil  832.5

MAT Credit

  • Credit of MAT paid can be carried forward for a period of 10 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
2010-11 2000 2500 Nil 2500 Nil
2011-12 2500 2100 Nil 2500 400
2012-13 1800 2100 300 1800 100

Therefore, MAT credit provisions ensure that the company will always pay a minimum tax (as can be seen in year 2012-13) called MAT.

Report of a “Accountant”

  • 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’)

Introduction

  • Finance Act 2012 introduced Chapter XII-BA whereby AMT was made applicable to
    • LLP’s from AY 2012-2013.
    • Later on also made applicable to “Persons other than corporate assessee” from  AY 2013-2014

Applicability

  • Assesses 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

ATI = Total Income + Deductions claimed under section 10AA, Chapter VIA (except section 80P)

Rate of Tax

ATI liable to income-tax at the rate of 18.5% (as increased by surcharge and cess as applicable ) if tax payable under normal provisions is less than 18.5% of ATI

AMT Credit

AMT credit = Tax paid as per AMT less tax payable under other provisions of the Act

In next article, we shall take the practical insights on this topic such as issues arising on amalgamation, applicability of section 14A, etc along with implication of new Companies Act, 2013 on MAT and its comparison to Companies Act, 1956.

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)

 

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One response to “Minimum Alternate Tax & Alternate Minimum Tax – Brief Provisions”

  1. Abhishek says:

    A very informative article!

  2. DHRMENDRA SINGH says:

    Thanks u shivashish Karnani sir…..

  3. CA S Rathore says:

    A nice read…please cover practical cases also…Thanks.. A treat to read ur articles…

  4. 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.

  5. ASHISH MOHTA says:

    Hi Shivashish, just read your article, very well explained, keep it going.

    regards
    ashish

  6. 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.

  7. 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 ?

  8. Shivashish Karnani says:

    Dear Sapan, It includes Surcharge and Cess.

  9. shivashish says:

    Thanku very much…

  10. GOPAL SAINI says:

    thanks Shivashish Karnani, its really a great explanation & heplfull to us, ur way of elaboration is so nice……

  11. Sapan Dasg says:

    I think the MAT credit to be carried forward should not include Surcharge and Educationa Cess.

  12. vikrant rathore says:

    Nice article…i had a personal issue in my return…will contact you..

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