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
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.
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)
|Amount withdrawn from any reserve or provision||Amount carried to any reserves by whatever name called (other than reserves relating to shipping business created under Section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;|
|Amount of deferred tax, if any||
Income tax penalty or its interest .
Tax including Wealth tax penalty or its interest.
Penalties under other laws
Need not be added back
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|
|AY||Tax as per MAT provisions||Tax as per normal provisions||MAT Creditset off||Tax payable||MATCredit c/f|
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”
Section 115JC – Alternate Minimum Tax (‘AMT’)
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 = 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 CA. Shivashish Karnani – B.Com(H), ACA is a Commerce Faculty & Former Tax Consultant-Ernst & Young and can be reach out freely at firstname.lastname@example.org and on +91-9818472772)