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In the Finance Bill, 2000, the government introduced the new provision u/s. 115JB:

The extract of the same from the memorandum to finance bill was as under:

“The new provisions provide that all companies having book profits under the Companies Act, prepared in accordance with Part II and Part- III of Schedule-VI to the Companies Act, shall be liable to pay a minimum alternate tax at a lower rate of 7.5%, as against the existing effective rate of 10.5% of the book profits. These provisions will be applicable to all corporate entities without any exception.”

If one would analyze the case, the Company was eligible to take the MAT credit set off in the next year upto (38.5%-8.25%) = 30.25% (including Surcharge) in AY 2001-02.

But as a Strategy, the Government did not apply this rule fairly in the interest of corporates. In each finance bill the government increased the rate of MAT and now this rate has increased to 18.5% in AY 2013-14 from 7.5% in AY 2001-02 and simultaneously kept reducing the difference between the MAT and Normal rate to reduce the eligibility of MAT to the Companies. The above difference for set off of MAT credit has been reduced to 13.03% from 30.25% in AY 2001-02. Thus, Corporates were given higher MAT credit when tax liability under MAT was very low and reduced the same when rate under MAT increased to very high rate of 18.5%.

Double side Sword: no option left for the corporates:

1. Increase in the MAT tax liability Burden

2. Due to Increase in MAT, the MAT credit set off available to the companies in the subsequent years is reduced in a cases where tax are paid under normal provisions and huge MAT credit is standing for set off

In this adverse effect of the Government unfair policy, the companies whose huge MAT credit was standing in the books either could not be fully set off and it lapsed or it is still standing in their books of accounts as Tax Assets without ensured to be set off in Future completely.

If the MAT credit was allowed to be set off, the balance of difference between the same should also have been maintained by the government fairly. But, it is not the case of our Financial Planning from our Ministry of Finance.

A comparative Chart of the difference in the MAT credit and increase in the MAT liability is given as under:

Assessment Year

Normal Rate of Tax (%) on Net Taxable Income

Rate of MAT u/s. 115JB (%) on Book Profit

MAT Credit**

MAT Credit eligible to C/f

Basic

SC

EC

Total

Basic

SC

EC

Total

A

B=%*A

C=%*(A+B)

D=A+B+C

E

F=%*E

G=%*(E+F)

H=E+F+G

I=D-H

2001-02

35

10

      -  

38.50

7.5

10

       -  

8.25

30.25

5 years

2002-03

35

2

      -  

35.70

7.5

2

       -  

7.65

28.05

5 years

2003-04

35

5

      -  

36.75

7.5

5

       -  

7.88

28.88

5 years

2004-05

35

2.5

      -  

35.88

7.5

2.5

       -  

7.69

28.19

5 years

2005-06

35

2.5

2

36.59

7.5

2.5

2

7.84

28.75

5 years

2006-07

30

10

2

33.66

7.5

10

2

8.42

25.25

5 years

2007-08

30

10

2

33.66

10

10

2

11.22

22.44

7 years

2008-09*

30

10

3

33.99

10

10

3

11.33

22.66

7 years

2009-10*

30

10

3

33.99

10

10

3

11.33

22.66

7 years

2010-11*

30

10

3

33.99

15

10

3

17.00

17.00

10 years

2011-12*

30

10

3

33.99

18

10

3

20.39

13.60

10 years

2012-13*

30

10

3

33.99

18.5

10

3

20.96

13.03

10 years

2013-14*

30

10

3

33.99

18.5

10

3

20.96

13.03

10 years

                     

*Surcharge is applicable only if the Net Taxable Income exceeds Rs. 1 crore

 

** Reducing trend in MAT credit available for set off in spite of increase in MAT rate continuously

In view of the above, the policy of bringing tax rates in every financial bill is not justifiable at all in consideration of overall financial aspects of the Industry and also not in the interest of the Corporates. Accordingly, it should be reconsidered for the MAT Prospective. 

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Category Income Tax, Other Articles by - Deepak Agrawal 



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