Quick Summary
The MAT credit is available in respect of MAT paid under Section 115JB of the Income-tax Act with effect from assessment year 2006-07.
The amount of MAT credit would be equal to the excess of MAT over normal income-tax for the assessment year for which MAT is paid.
The MAT Credit so determined can be carried forward for set-off for five succeeding years from the year in which MAT credit becomes allowable (Proposed Amendment in Finance Act, 2006- 7 years).
The amount of MAT credit can be set-off only in the year in which the company is liable to pay tax as per the normal provisions of the Act and such tax is in excess of MAT for that year.
The amount of set-off would be to the extent of excess of normal income-tax over the amount of MAT.
It is not appropriate to consider MAT credit as a deferred tax asset for the purposes of Accounting Standard -22 (Accounting for Taxes on Income)
Although MAT credit is not a deferred tax asset under AS-22, but it can be considered as an "asset" and the same should be presented under the head "LOANS AND ADVANCES" considering it is of the nature of a pre-paid tax.
The MAT credit may be reflected as "MAT CREDIT ENTITLEMENT A/c"
The following entry is to be passed for recognizing the MAT credit as Asset:
MAT Credit Entitlement A/c Dr.
To Profit and Loss A/c
While availing the MAT Credit, the following entry is to be passed:
Provision for Taxation A/c Dr
To MAT Credit Entitlement A/c
MAT credit should be reviewed at each balance sheet date.
While writing down the carrying amount of MAT Credit entitlement, the following entry is to be passed:
Profit and Loss A/c Dr.
To MAT Credit Entitlement A/c
The difference between MAT paid and MAT Credit Entitlement can be treated as tax paid during the year.
FAQ :
MAT credit is the amount of Minimum Alternate Tax (MAT) paid that exceeds the normal income-tax liability for a given assessment year.
MAT credit is available in respect of MAT paid under Section 115JB of the Income-tax Act, effective from assessment year 2006-07.
MAT credit can be carried forward for set-off for five succeeding years from the year it becomes allowable (proposed amendment suggests 7 years).
MAT credit can only be set off in a year when the company is liable to pay tax under normal provisions, and this normal tax liability is in excess of the MAT for that year.
Although not a deferred tax asset under AS-22, MAT credit is treated as an 'asset' and presented under 'Loans and Advances' as a prepaid tax. It is reflected as 'MAT CREDIT ENTITLEMENT A/c'.
To recognize MAT credit as an asset, 'MAT Credit Entitlement A/c' is debited and 'Profit and Loss A/c' is credited. When availing the credit, 'Provision for Taxation A/c' is debited, and 'MAT Credit Entitlement A/c' is credited.
CAclubindia
