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Current year depreciation and mat

Geetha Gupta (Accountant) (325 Points)

04 September 2015

Hi all,

As per Sec 115JB, Net profit as per companies act needs to be adjusted to arrive at Book profits.

As a part of the adjustment, w.r.t depreciation for the year which has been debited to P&L, first needs to be added back to the Net profit.

Then later on, is this same Depreciation is reduced from the net profit ?

If this is so, what is the use of these adjustments? They mathematically give zero effect.

I think there will a difference only when there is revaluation of assets. In which case, Depreciation added back includes depreciation on revaluation whereas the depreciation that is reduced later excludes depreciation on revaluation.

Please clarify.

Regards,

Geetha

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6 Replies

S Sundharesan (Chief Executive) (24 Points)
Replied 04 September 2015

Depreciation as per WDV (Income tax) method will be reduced for arriving taxable income

CA PARTH SHAH (In Practice) (1951 Points)
Replied 05 September 2015

Income tax depreciation have no effect on calcualting Book Profit of For MAT. You are right Geetha Gupta, If there is no revaluation of asset then there will be no effect of Depreciation whole finding book profit of MAT u/s 115JB

Geetha Gupta (Accountant) (325 Points)
Replied 05 September 2015

Thanks Partha Ji for confirming my observation on this issue.

Sundharesan ji, Partha Ji is correct. Depreciation as per Income tax has no role in MAT calculations. Depreciation here means as per Companies Act

Also, I was just thinking out the “why” for my own sake, for better understanding the process of calculating MAT.

When working with MAT, we need to split the net Profit/Loss into Business loss and unabsorbed depreciation, when there is a net loss for the year, since these two figures need to be accumulated and carried forward till the lesser of the two is completely written off against future profits.

Probably, the reason for adding Depreciation to the net profit/Loss is to determine the amount of profit/Loss before depreciation ie.. the business loss / profit. Therefore when depreciation is deducted from the profit/Loss before depreciation, in case of a net loss, we get to know what portion of the net loss is represented by unabsorbed depreciation and what is the business loss/Profit for the year. So, does this mean then that current depreciation should be the first of the deductions and the rest of the items for deduction from the book profits need to be done if there are some profits left over?

Regards,

Geetha

CA PARTH SHAH (In Practice) (1951 Points)
Replied 06 September 2015

Yes.. Actually the lower of amount of book value of unabsorbed loss or unabsorbed deprectiation is to be carried forward for a particular year for the purpose of book profit. However if the untill the amount of net loss does not cover the deprectiation amount, there will be no unabsorbed loss for that year. and so no amount is to be carried forward

eg if Net Loss is Rs 100 and Total Depreciation is Rs 200, the we can say there is Rs 100 of Unabsrobed Depreciation but there is no unabsorbed loss. Hence no amount is carried forward. But in the above case if Deprectiation amount is just Rs 20 then we can say that Unabsorbed depreication is Rs 20 and unabsorbed loss is Rs 80. Accordingly Rs 20 shall be carried forward. and can be set off from thr future book profit.