Minimum Alternate Tax (MAT) Under Section 115JB

MAT is applicable to all companies including foreign companies. It is a provision introduced for companies which are making huge profit but not paying any tax by taking advantage of various deductions and exemptions under Income Tax Act.

Section 115JB contains the provisions for MAT. As per this section every company is required to pay tax of higher of the following amounts.
1. Tax Liability as per Normal Provisions (30% or 25% as the case may be of taxable profit)
2. Tax Liability as per MAT provisions (18.5% of the book profit)

How to Calculate Tax Liability as per MAT

Tax Liability as per MAT = Book Profit x 18.5% (and education cess and higher education cess and surcharge (if applicable)

Calculation of Book Profit

Net Profit as per Profit and Loss Account

  1. Income Tax paid or payable if any calculated as per normal provisions of income tax act.
  2. Transfer made to any reserve
  3. Dividend proposed or paid
  4. Provision for loss of subsidiary companies
  5. Depreciation including depreciation on account of revaluation of assets
  6. Amount/provision of deferred tax
  7. Provision for unascertained liabilities e.g. provision for bad debts
  8. Amount of expense relating to exempt income u/s 10,11,12 (except sec 10AA and 10(38) (It means income u/s 10AA & long term capital gain exempt u/s 10(38) are subject to MAT).
  1. Amount withdrawn from any reserves or provisions
  2. The amount of income to which any of the provisions of section 10, 11 & 12 except 10AA & 10(38) apply.
  3. Amount withdrawn from revaluation reserve and credited to profit & loss account to the extent of depreciation on account of revaluation of asset.
  4. Amount of loss brought forward or unabsorbed depreciation, whichever is less as per the books of account. However loss shall not include the depreciation. (if loss brought forward or unabsorbed depreciation is nil then nothing shall be deducted.)
  5. Amount of Deferred Tax, is any such amount is credited in the profit & loss account
  6. Amount of depreciation debited to P/l A/c (excluding the depreciation on revaluation of Assets)
The amount which comes is the book profit and used for calculating tax liability as per MAT.

MAT Credit and its adjustment in subsequent years

Any amount paid as MAT which is over and above the tax payable under normal provisions is allowed as MAT credit to that company. Simply,

MAT Credit = Tax payable as per MAT less Tax Payable as per Normal Provisions (if positive)

Means if a company pays tax as per MAT because it exceeds tax as per normal provisions then such excess is allowed as credit in subsequent years as deduction in year when tax as per normal provisions is more than tax as per MAT.

Credit which can be claimed in such subsequent year is restricted to the amount which is excess of tax as per normal provisions over tax as per MAT. In other words, minimum amount of tax payable is the amount which is tax calculated as per MAT.

Such tax credit shall be carry forward for 10 assessment year immediately succeeding the assessment year in which such credit is become allowable. For instance If the excess tax is paid in FY 2016-17, then the credit of such tax can be carried forward till FY 2027-28.

For Example

Section 115JB of the Income-tax Act 1961

Report from chartered accountant

Every company to whom the provisions of section 115JB applies is required to obtain a report from a chartered accountant in Form No. 29B certifying that the book profit has been computed in accordance with the provisions of section 115JB. The report should be obtained on or before due date of filing the return of income. Audit report in Form No. 29B shall be filed electronically.

MAT applicability on SEZ Units and SEZ Developers

Previously MAT is not applicable on SEZ units and SEZ developers. But from the year 2011, MAT is also applicable on SEZ units and SEZ developers.

Article was submitted by / on behalf of Taxadda website.