MEANING
Minimum Alternate Tax or MAT is a provision that is in direct tax laws which is for companies, it is the provision for limit the tax exemptions which is availed by the companies. The provision requires that the company shall not avail more exemption and they should pay at least minimum amount of tax to the government. Under Section 115JB, the company has to pay compulsorily corporate tax to the government and the amount shall be higher of the following:
- Normal tax liability of the company which is calculated as per the normal tax provision that is by applying normal tax rate to the company which is applicable to them. OR
- Minimum Alternate Tax which is computed at the rate of 15% for Financial Year 2019-2020 on book profit adding applicable cess and surcharge.
COMPANIES THAT ARE LIABLE TO PAY MAT
All companies whether it is private company or public company or whether it is Indian company or foreign company, they all are eligible to pay MAT, if the income tax which is payable by the company is less than 15% of book profit and cess and surcharge.
EXCEPTION
There is exception to the company which is receiving income from business of life insurance and shipping income which is liable to pay tonnage taxation which is covered under section 115V to 115VZC of Income Tax Act, 1961.
CALCULATION OF MAT
MAT is calculated at the rate of 15% of book profit of the tax payer, and as per section 115JB of income tax act book profit is calculated.
CALCULATION OF BOOK PROFIT
Book profit means net profit which is calculated in the profit and loss account which is prepared as per Schedule III of the Companies Act, 2013, this is as per section 115JB (2). There are some cost and income which shall be taken into account while calculating book profit of the company.
The following amount shall be added while calculating book profit if the amount is debited to profit and loss account
- Income tax paid.
- Amounts which is carried to any reserve except which is specified under Section 33AC.
- Provision relating to unascertained liabilities.
- Provision relating to losses of subsidiary companies.
- Dividend paid.
- Expenditure that is related to incomes which are exempt under Section 10, 11, and 12 but it excludes the amount which is under section 10(38).
- Income of an individual which is obtained from association of person or body of individuals on which income tax is not payable.
The following amount shall be deducted while calculating book profit if the amount is credited to profit and loss account
- Amount that is withdrawn from any reserve;
- Incomes which are exempt under Section 10, 11, and 12 but it excludes the amount which is under section 10(38).
- Amount that is related to depreciation which is debited to profit and loss account.
- Amount that is withdrawn from re-valuation reserve to the extent that it does not exceed the depreciation amount.
- Income of an individual which is obtained from association of person or body of individuals on which income tax is not payable.
Authored by Adv Shivam Kumar
CAclubindia
