The Taxation Laws (Amendment) ordinance 2019 introduced the following New Section 115BAA and Section 115BAB.

Section 115BAA is applicable for existing companies, Section 115BAB is applicable for companies formed on or after1st October 2019.

Both the New sections did not permit the assesses to avail the benefits / incentives available in Sections 32(1)(ii), 32AB, 33AB,33ABA,35(2AB),35AD,35CCC,35CCD and deductions under chapter VI A other than 80 JJAA if such companies opt to pay tax under these sections.

Though the section 115BAA denied the benefits / incentives, did not spell out the allow ability of MAT credit against tax computed under Section 115BAA  of the Income tax Act.

At this juncture, we will analyse MAT tax paid under Section 115JB and the provisions of Section 115JAA of the Income tax Act.

  • Section 115JAA(1A) confirms the allowability of the MAT credit in subsequent assessment years in accordance of the provisions of this section.
  • Section 115AA(2A) explains that, the amount can be set off MAT credit being to the extent of difference between Tax paid under section 115JB and tax payable on Total Income computed in accordance with the other provisions of this act
  • Section 115JAA(3A) talks about availability of Number of Years to carry forward the MAT credit being 15 years.
  • Section 115JAA(4) talks about set off of tax when tax becomes payable on Total Income computed in accordance with the provisions of the act other than Section 115JB.
  • Section 115JAA(5) talks about the set off of tax credit to the extent of difference between the tax on Total Income and the tax which would have been payable Under section 115JB.

On analysis of Section 115JAA of the act, it is clear that, MAT credit can be set off against the tax computed under the provisions other than 115JB of the act.

The relevant point to be mentioned here is, whether tax paid under section 115JB can be set off against the tax payable under section 115BAA of the act.

The following are relevant for the purpose of the set off of the MAT credit

  • Tax paid under the Provisions of the act other than section 115JB

Tax to be paid under section 115BAA can be construed as Tax paid under the Provisions of the act other than section 115JB.

  • Tax credit can be set off to the extent of difference between the tax on Total income and the tax which would have been payable under section 115JB.

Here we need to consider amendment made in section 5A of section 115JB of the Income tax act which excludes the applicability of this section 115JB on book profits of companies opted to pay tax under section 115BAA of the Income tax act.

Section 115JAA(5) talks about comparison of tax on total income under provisions other than 115JB however amended section 115JB talks about non applicability of Section 115JB to section 115BAA of the Income tax at.

Hence, in order to avail tax credit we can compute Tax on Total Income under Section 115BAA and compute tax on book profit under section 115JB only for comparison purpose, and avail the MAT credit available to the extent of difference between the tax U/s 115BAA and U/s 115JB.

Example:

MAT Credit Available Rs. 200 Cr
Book Profit Rs. 2000 Cr
Tax Under Section 115JB @ 17.01 Rs. 340 Cr
Total Income Under Section 115BAA Rs. 1900 Cr
Tax Under Section 115BAA @ 25.17% Rs. 478 Cr
Difference between Tax U/s 115BAA and U/s 115JB Rs. 138 Cr

Since the available MAT credit is Rs. 200 Cr, the same can be adjusted to the extent of Rs. 138 Cr.

Also Read relevant Press Releases and Notifications

Taxation Laws (Amendment) Ordinance, 2019

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2 Comments

  1. amit says:

    To Avail option u/s 115BAA, deduction u/s 32(1)(ii) is allowed, it is deduction u/s 32(1)(iia) which is not allowed. Correct me if there is any Mistake.

  2. amit says:

    I have a Query, When one is opting for Corporate Tax Rate of 25.17%, then MAT is not Applicable and no use of MAT Credit Also.Kindly advise

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