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We know that MAT stands for Minimum Alternate Tax and AMT stands for Alternate Minimum Tax. For the purpose of better and clear understanding of MAT and AMT, I have made a comparison of various related provisions as stated below:



Sl. No.

Particulars

MAT

AMT

1

Governing section of Income Tax Act, 1961

115JB

115JC to 115JF

2

Objective of introduction

Payment of no tax or less tax by the assessee, in spite of earning substantial book profit, because of various exemptions, concessions or/and incentives provided under Income Tax Law.

Same

3

Applicability

Company whether public or private, Indian or foreign*.

Exception i.e., the provisions of MAT shall not apply to:

· any income accruing or arising to a company from life insurance business referred to in section 115B [Section 115JB(5A)]

·a shipping income liable to tonnage taxation as per provisions of Section 115V-O.

Other than Corporate assessee who has claimed any deduction under section:

  • 80H to 80RRB (except 80P); or
  • 10AA; or
  • 35AD.

As per section 115JEE, The provisions of AMT shall apply to an individual or a Hindu undivided family or an association of persons or a body of individuals (whether incorporated or not) or an artificial juridical person, only if the adjusted total income of such person exceeds twenty lakh rupees.

4

Tax Liability

Higher than the following:

a) Tax liability computed under the normal provisions of the Income Tax [“normal tax liability”];

b) MAT i.e., tax @ 18.5% [plus surcharge and cess as applicable] computed on book profit1.

Note: where the assessee is a unit located in an International Financial Services Centre and derives its income solely in convertible foreign exchange, MAT is levied at the rate of 9% (plus surcharge and cess as applicable) [as per sub section (7) of section 115JB inserted by Finance Act, 2016]

[For better understanding refer example 1]

Higher than the following:

a) Tax liability computed under the normal provisions of the Income Tax [“normal tax liability”];

b) AMT i.e., tax @18.5% [plus surcharge and cess as applicable] computed on adjusted total income.

[For better understanding refer example 3]

5

Credit

As mentioned above, a company has to pay higher than the normal tax liability or MAT. If in any year the company pays liability as per MAT, then it is entitled to claim credit of MAT paid over and above the normal tax liability in the subsequent year(s).

The credit can be utilised in the year in which the liability of the company as per the normal provisions is more than the MAT liability. However, after set off of MAT credit, the tax liability of the company cannot be less than liability as per the provisions of MAT.

The MAT credit can be carried forward only for a period of 10years after which it shall lapse.

[For better understanding refer example 2]

As mentioned above, a non-corporate assessee to whom provision of AMT applies, has to pay higher than the normal tax liability or AMT. If in any year such assessee pays tax liability as per AMT, then he is entitled to claim AMT credit of excess of AMT paid over the normal tax liability in the subsequent year(s).

The credit can be utilised in the year in which the liability of the company as per the normal provisions is more than the AMT liability. However, after set off of AMT credit, the tax liability of the assessee cannot be less than liability as per the provisions of MAT.

The AMT credit can be carried forward only for a period of 10years after which it shall lapse.

[For better understanding refer example 4]

6

CA Report

Every company to which section 115JB applies, shall furnish a report in Form-29B from a Chartered Accountant, certifying that the book profit has been computed in accordance with the provisions of section 115JB along with the return of income filed under section 139(1) or along with the return of income furnished in response to a notice under section 142(1)(i).

Such form shall be filed electronically.

Every non-corporate assessee [to whom the provisions of AMT apply] is required to obtain a report from a Chartered Accountant in Form No. 29C on or before the due date of filing the return of income.


* As per Explanation 4 to section 115JB as amended by Finance Act, 2016 with retrospective effect from 1/4/2001, MAT provisions shall not be applicable and shall be deemed never to have been applicable to an assessee, being a foreign company, if—

a) the assessee is a resident of a country or a specified territory with which India has an agreement referred to in sub-section (1) of section 90 or the Central Government has adopted any agreement under sub-section (1) of section 90A and the assessee does not have a permanent establishment in India in accordance with the provisions of such agreement; or

b) the assessee is a resident of a country with which India does not have an agreement of the nature referred to in clause (a) and the assessee is not required to seek registration under any law for the time being in force relating to companies.

1Book profit is computed as per the explanation 1 to the section 115JB(2) and the same is explained as follows:

Particulars

Point(s) to be kept in mind

Net profit as per P & L Account

P& L to be prepared in accordance with Schedule III to the Companies Act, 2013

Add: [ if following debited to the P & L A/c]

 

Income-tax paid or payable and the provision thereof

The amount of income-tax shall include -

(i)  any tax on distributed profits under section 115-O or on distributed income under section 115R;

(ii)  any interest charged under this Act;

(iii) surcharge, if any, as levied by the Central Acts from time to time;

(iv) Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and

(v)  Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time.

Amounts carried to any reserves, by whatever name called , other than a reserve specified under section 33AC

-

Amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities

It’s nothing but provisions for unascertained liabilities

Provisions for losses of subsidiary companies

-

Dividends paid or proposed

-

Expenditure relatable to any income to which section 10 or section 11 or section 12 apply

Expenditure relatable to any income to which section 10(38) applies should not be added.

Amount or amounts of expenditure relatable to income, being share of the assessee in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86

-

Amount or amounts of expenditure relatable to income accruing or arising to a foreign company, from,—

(A) the capital gains arising on transactions in securities; or

(B) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII,

if the income-tax payable thereon is at a rate less than the rate of 18.5%

-

Amount representing notional loss on transfer of a capital asset, being share of a special purpose vehicle, to a business trust in exchange of units allotted by the trust referred to in clause (xvii) of section 47 or the amount representing notional loss resulting from any change in carrying amount of said units or the amount of loss on transfer of units referred to in clause (xvii) of section 47

-

Expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF[inserted by the Finance Act, 2016, w.e.f. 1-4-2017]

-

Amount of depreciation

Book depreciation

Deferred tax and the provision therefore

-

Provision for diminution in the value of any asset

-

Amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset

Only if the same is not credited to P&L A/c

Amount of gain on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through profit or loss account, as the case may be

-

   

Less:[ if following credited to the P & L A/c]

 

Amount withdrawn from any reserve or provision if credited to the profit and loss account

Where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall be reduced from the book profit if the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn)

Incomes which are exempt under section 10, section 11 and section 12

Income under section 10(38) shall not be reduced.

Amount of depreciation debited to the profit and loss account (excluding the depreciation on account of revaluation of assets)

-

Amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets

-

Amount of income, being the share of the assessee in the income of an association of persons or body of individuals, on which no income-tax is payable in accordance with the provisions of section 86

-

Amount of income accruing or arising to a foreign company, from,—

(A) the capital gains arising on transactions in securities; or

(B) the interest, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII,

if such income is credited to the profit and loss account and the income-tax payable thereon is at a rate less than the rate of 18.5%

-

Amount representing,—

(A) notional gain on transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust referred to in clause (xvii) of section 47; or

(B) notional gain resulting from any change in carrying amount of said units; or

(C) gain on transfer of units referred to in clause (xvii) of section 47,

if any, credited to the profit and loss account

-

Amount of loss on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through profit or loss account, as the case may be;

-

Amount of income by way of royalty in respect of patent chargeable to tax under section 115BBF

[inserted by the Finance Act, 2016, w.e.f. 1-4-2017]

-

Amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.

For the purposes of this clause,—

(a) the loss shall not include depreciation;

(b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil

Amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.

For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986)

Deferred tax

-


2 Adjusted total income = Taxable income + Amount of deduction claimed under section 80H to 80RRB (except 80P) + Amount of deduction claimed under section 35AD (as reduced by the amount of depreciation allowable under section 32) + Amount of deduction claimed under section 10AA.

Examples:–

No.

Question

Answer

1

Company - X Ltd

•  Financial Year – 2016-17
•  Taxable income  – 9,00,000
•  Book profit u/s 115JB – 16,00,000
•  Tax liability of company - ?

· Tax liability of the company would be normal tax liability or MAT whichever is higher.

·  Normal tax liability= 2,70,000 [30% of 9,00,000] + cess

· MAT = 2,96,000 [18.5% of 16,00,000] + cess

Tax liability of company = 2,96,000 + cess, being higher of above.

2

Company - Y Ltd

•  Financial Year – 2016-17
•  Normal Tax liability – 9,00,000
•  MAT – 10,00,000

MAT Credit [F Y 2016-17]- ?

•  Financial Year – 2017-18
•  Normal Tax liability – 19,00,000
•  MAT – 18,50,000
•  Tax Liability &MAT credit balance- ?

2016-17:

We know that company paying MAT would be entitled to claim credit of MAT paid over and above the normal tax liability in the subsequent year(s).

In the given example, company should pay tax liability of 10,00,000, being higher than normal tax liability

MAT credit would be excess MAT paid over the normal tax liability. Hence in the given case MAT credit would be 1,00,000 [10,00,000-9,00,000]

2017-18:

We have MAT credit of 1,00,000 which is carried forwarded from the F Y 2016-17.

We know that MAT credit can be utilised in the year in which the liability of the company as per the normal provisions is more than the MAT liability. In 2017-18, liability as per the normal provisions is more than liability as per the provisions of MAT [so, 19,00,000 would be tax liability before set off of MAT credit]. Hence we can utilise the MAT.

We also know that, after set off of MAT credit, the tax liability of the company cannot be less than liability as per the provisions of MAT. In 2017-18 MAT liability is 18,50,000 and hence, after claiming set off of MAT credit, the liability of the company cannot be less than 18,50,000. So we can utilise the MAT credit of 50,000 only out of 1,00,000 credit and the balance credit of 50,000 can be carried forwarded to next year(s).

3

• Assessee – Mr. P [Resident, Age-45]

• Financial year – 2016-17
• Taxable income – 18,00,000 [after deduction of 3,00,000 u/s 80QQB]
• Tax liability - ?
• AMT credit - ?

AMT applies to Mr.P on the following grounds:

·  He has made a claim for deduction u/s 80QQB and

· Adjusted Total Income [“ATI”] exceeds 20,00,000 [18,00,000+3,00,000=21,00,000]

Tax liability would be higher of the following:

·  Normal Tax Liability  - 3,75,950 [including cess]

·  AMT – 4,00,155 [18.5% of 21,00,000 + 3% cess]

Hence, tax liability would be 4,00,155.

AMT credit – 24,205 [4,00,155-3,75,950]

4

Continuing with example – 3.

•  Financial year – 2017-18
• Normal Tax Liability – 15,20,000
•  AMT – 15,00,000
•  Treatment of credit - ?

We have brought forward of AMT credit – 24,205.

Tax liability would be 15,20,000 being higher than AMT. As we have credit of AMT, we can utilise the same to the extent of 20,000 out of 24,205, since after set off of credit, tax liability should not be less the AMT of relevant previous year. Hence, tax liability after set off would be 15,00,000.

Balance credit of 4,205 [24,205-20,000] shall be carried forwarded to subsequent year(s).


Disclaimer: Author is not responsible for the correctness or otherwise of the contents published herein. If any errors or omissions are noticed, the same may be brought to the attention of the author.

Author is Tax professional and you can also reach him through Koushik.d.c@gmail.com.

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