A. Background of Amendment in Income tax Law:
The Central Government vide notification no. G.S.R. 111(e) dated February 16, 2015 has notified the road map for application of Indian Accounting Standards (“Ind AS”) to certain class of companies fulfilling the criteria of applicability. As different accounting treatments have been suggested under Previous GAAP and Ind AS for certain transactions, the book profit under MAT may change. Therefore, the Central Board of Direct Taxes (CBDT) constituted a committee in June, 2015 for suggesting the framework for computation of minimum alternate tax (MAT) liability under section 115JB for Ind AS compliant companies in the year of adoption and thereafter. The Committee has given its final report on December 22, 2016. Consequently, Finance Act, 2017 has amended Section 115JB of the Income tax Act, 1961 in order to incorporate provisions w.r.t. Ind AS compliant companies.
B. Adjustments with respect to Ind AS:
B1. TREATMENT OF TRANSITION AMOUNT:
The computation of MAT for the year in which first time adoption of Ind AS has been taken place will include, apart from current year adjustments, the adjustments which are made in the preceding financial year as well as on the transition date. The sum total of all the adjustments made till preceding financial year (FY) end will be taken up for the purpose of adjustments in MAT as “Transition Amount” subject to certain exceptions within the prescribed period (to be discussed later). The transition amount is required to be computed as under:
Computation of Transition Amount:
|Total amount of adjustments made in Other Equity as at transition date||XXXX|
|Total amount of adjustments in made Other Equity during the corresponding year||XXXX|
|Total amount of adjustments in Other Equity as at preceding F.Y. end@||XXXX|
|Less/Add: Items which are not required to be given any tax treatment or treated subsequently on realization/ disposal|
|Adjustment to Deferred tax figure*||XXXX|
|Adjustment to Provision for doubtful debts figure based on application of ECL model*||XXXX|
|Adjustment to proposed dividend*||XXXX|
|Reclassification of share application money pending allotment*||XXXX|
|Reclassification of capital reserve*||XXXX|
|Foreign Exchange Gains/loss on foreign operations (to be taken at the time of disposal)||XXXX|
|Items of other comprehensive income which will be reclassified to Statement of Profit and loss
(to be taken into account on realization of the same)
|Revaluation Surplus on items of Property, plant and equipment and Intangible assets and fair valuation gain/loss on investment in equity instruments through OCI (to be taken into account on the date of disposal, realization of such asset or investment)||XXXX|
*As per CBDT FAQs on MAT vide Circular No. 24/2017 dated 25th July, 2017
@ Can be taken directly from the equity reconciliation of the preceding financial year as given in the financial statements.
Period of Adjustment of Transition Amount under Minimum Alternate tax:
Transition amount shall be included in the book profits, equally over a period of 5 years starting from the year of first time adoption of Ind AS.
Example: XYZ Limited is adopting Indian Accounting Standards (Ind AS) for the first time in Financial Year 2017-18. Then, the transition amount will be adjusted under MAT equally in five consecutive years starting from 2017-18. Hence, the transition amount will be adjusted 1/5th each year in 2017-18 to 2021-22.
TREATMENT OF CURRENT YEAR IND AS ADJUSTMENTS:
Section 115JB (2A) has been inserted which provides for the following additional adjustments to be made apart from adjustments already prescribed under Section 115JB of Income tax Act, 1961 from the profit before other comprehensive income:
Book Profit Increased by:
> all amounts credited to other comprehensive income in the statement of profit and loss under the head “Items that will not be re-classified to profit or loss”
> amounts or aggregate of the amounts debited to the statement of profit and loss on distribution of non-cash assets to shareholders in a demerger.
Book Profit decreased by:
> all amounts debited to other comprehensive income in the statement of profit and loss under the head “Items that will not be re-classified to profit or loss”
> all amounts or aggregate of the amounts credited to the statement of profit and loss on distribution of non-cash assets to shareholders in a demerger.
a) The adjustment on account of revaluation surplus on Property, plant and equipment (PPE) and Intangible assets will be taken into account when such asset is disposed off, realized or otherwise transferred.
b) The adjustment on account of fair valuation of equity instruments through OCI will be taken into account when such investment is disposed, realized or otherwise transferred.