In this article, let us explore how tax planning under mat works. The minimum alternative tax mat is a provision introduced in direct tax laws to limit the tax deductionsexemptions otherwise available to taxpayers so that they pay a minimum amount of tax to the government. Income tax paid or payable if any calculated as per normal provisions of income tax act. Mat credit, even though the carry forward period of credit has been allowed up to 15 years. Minimum alternate tax mat minimum alternate tax was introduced by finance act, 2000 provides for the levy of a minimum tax on book profits at 18. Later on, it was withdrawn by the finance act, 1990 and reintroduced by finance act, 1996 with effect from 01st april 1997. What is the minimum alternate tax mat in simple terms. Framework for computation of book profit for the purposes of levy of mat under section 115jb of the incometax act, 1961 for indian accounting standards ind as compliant companies. A company has to pay mat or tax as per normal provisions, whichever is higher. Cbdt clarifies on computation of book profit for the. Cbdt issues faqs on computation of book profit for levy of mat and. The minimum alternate tax mat on companies challenges and way forward 09. The treatment of deferred tax charge in determining the tax liability under the special provisions of section 115jb of the incometax act is one such case.
Under existing rules, book profit is calculated as per. If its normal tax liability after claiming deductions is rs 10 crore less than mat, it is required to pay the remainder rs 5 crore as mat and use mat credit equivalent to rs 5 crore to pay tax in the future. The goal is to produce a chart like the one i pasted, depicting monthly and mat share of sales for each company. For the year concerned, the subsidiary filed its return and was subject to mat on its book profit. Accordingly, mat would be calculated using the profits as per the.
Amount deductible as remuneration under section 40b if book profit is negative. Remuneration and interest to partners section 40b taxadda. For a taxpayer, the determination of correct tax liability is as important an exercise as the legitimate tax planning. Calculate total tax costs and benefits of a cross border transaction including. Mat is levied at the rate of 9% plus surcharge and cess as applicable in case of a company. Mat stands for minimum alternate tax, and it was launched to reduce if not to bridge the gap between the tax accountability as per income calculation and book profits. Government of india ministry of finance department of revenue central board of direct taxes. For computation of book profit, one may proceed as follows. No marginal relief, since the income does not exceed.
First of all calculate tax as per normal provisions of income tax. The current matprovision prescribes certain adjustments to book profits, viz. Calculation of book profits for the purpose of mat section 115jb. The provisions of section 115jb provide for levy of mat on basis of book profits, i. Based on the above, the committee further deliberated on the issues and has now provided its. It requires that every company shall pay tax on its book profits arrived by preparing its accounts as per schedule iii to companies act 20 part ii of schedule vi to companies act 1956 earlier, subject to adjustments as provided under explanation 1 thereunder. For example, a company with rs 100 crore book profit is required to pay a minimum tax of rs 15 crore assuming 15 per cent mat rate. That is, book profit occurs when the current price of a security is higher than the price the holder paid for it, but the holder still owns the security. The objective behind mat or minimum alternate tax is to facilitate taxation of zero tax companies, by making such companies liable to pay a minimum tax based on their book profit. Calculation of mat credit applicability of minimum. It was felt that due to various concession provided in tax laws big corporate groups become zero tax companies. Book profit definition, examples how to calculate book.
Mat was introduced by the finance act, 1987 with effect from assessment year 199899. Specifically, in case of a company, there are two different ways to compute income. Complexity in computing the book profit under mat provisions. These requirements should be read together with the existing provisions for computation of mat under section 115jb of the act, in particular, the adjustments discussed in explanation 1 to subsection 2. Mat provisions require book profit to be adjusted against lower of brought forward unabsorbed loss and unabsorbed depreciation and not merely restrict the amount setoff to the lower number. Minimum alternate tax part iv computation of book profits. Book profit under income tax act in the context of mat. Provisions of mat for payment of tax by certain companies section 115jb tax payable for any assessment year cannot he less than 15% of book profit. Presence of pe is a must to tax fiisfpis the financial. Framework for computation of book profit for the purposes of levy of mat under section 115jb of the incometax act, 1961 for indian accounting standards ind as compliant companies may 03, 2016. As per section 115jb of the income tax act, if for any previous year for a company the tax payable on the total income as calculated on the basis of the income tax act, falls below 18.
Minimum alternative tax is payable under the income tax act. Calculation of book profits for the purpose of matmaximum alternate tax section 115jb. As the profit and loss account is subject to notes and qualifications thereon, the profit shown in the profit and loss account may have to be adjusted with the. Minimum alternative tax mat and computation of book profits. Book profit a gain on an investment that has not yet been realized. Calculation of book profits for the purpose of mat. Cbdt circular of clarifications faqs on computation of s. Book profits as per 115 jb xxxx 10 % of the book profits xxxx surcharge xxxx education cess xxxx total tax liability xxxx kindly note that except these adjustments nothing to be considered for mat calculation. The new adjustments can be grouped into following two. Currently, the mat is applicable only to companies as per the provision of. The finance act, 2017 also provides certain adjustments to book profits for mat computation. Mat provisions require book profit off to the lower number. Step 1 find out net profit before other comprehensive income oci as per statement of profit and loss of the company.
Current mat calculation with companies transitioning to ind as, adjustment to current mat formula is required. Where in the case of a company, the incometax payable on the total income as computed under the incometax act, is less than15% of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax. In view of the fact that it is a capital receipt and not regarded as incomesection 224 of the income tax actit reduced the same from the book profits for the purpose of mat calculation. The taxpayer in the preceding years, while computing book profits under section 115jb of the. Taxpayers methodology to set off and carry forward. In todays scenario, the determination of correct tax liability poses several challenges. Calculation of mat credit applicability of minimum alternate tax. Indian tribunal holds book profits not subject to transfer pricing. Broadly speaking book profit in context of mat means profit as shown in the profit and loss account adjusted by additions and deductions as provided in respective sections that is section115j, section115ja and section 115jb. Book profit as we have discussed is the profit as shown in profit and loss account of the entity and considered to be the actual profits because it considered all cash and noncash transactions.
Minimum alternative tax mat and its computation of book profit and mat credit under section 115jb of income tax act, 1961. Where in case of a company, the income tax payable on the total income as computed under the income tax act in respect of any previous year is less than 18. Book profit simply means profit as computed in accordance with the provisions but before remuneration paid to partner. Book profit the cumulative book income plus any gain or loss on disposition of assets. Tribunals decision a bare reading of explanation 1iii to section 115jb of the act provides that while computing the book profits, the amount of loss brought forward or unabsorbed depreciation, whichever is. Income tax is calculated on the income, and there are different ways to compute the income. This form of tax is applicable to all companies, including foreign companies that have established their presence in india. The tax computed by applying 15% plus surcharge and cess as applicable on book profit is called mat. A mat was introduced for the first time in the ay 198889. Cbdt issues faqs on computation of book profit for levy of.
Minimum alternate tax part iii computation of book profits. Mat provisions require book profit to be adjusted against. Conundrum on brought forward loss treatment under mat. Mat is a tax provision reintroduced in 1997 in an attempt to bring zerotaxhighprofits companies into the income tax net. As intermediary steps there should be an mat calculation rolling sum then two share calculations mth and mat as % of rows. Step 2 adjustment to net profit to convert it into book profit which are given under explanation 1 to section 115jb 2. Calculation of book profits for the purpose of matmaximum alternate tax section 115jb for computation of book profit, one may proceed as follows. What is minimum alternate tax, mat news, budget 2020 news. Calculation of book profits for the purpose of matmaximum alternate tax section 115jb step 1. Minimum alternate tax mat us 115jb of income tax act, 1961. Sir if any company is engaged in bio degradable business to which section 80jja applies then the deduction will be 100% of such income. Minimum alternate tax is applicable for all companies except for companies involved in the life. Mat book profit computation 115jb for ind as compliant.
Mat is applied when the taxable income calculated as per the normal provisions in the it act is found to be less than 18. Mat is calculated as 15% of the book profit of the tax assesse. Framework for computation of book profit for the purpose. Computation of book profits by ind as compliant companies. Like revenue generated through sales made on credit and charging annual depreciation, in which no actual cash transaction occurs and are just book entries. The minimum alternate tax mat on companies challenges. But if at the same time provisions of mat also applies then can this deduction can be claimed, because in mat we have to calculate tax payble by normal method which would be 0 in this type of business as 100% deduction allowed, and then 18. Therefore, to counter this, as system of mat was introduced.