ICICI

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More


Hello to all colleagues and my dear friends. This is my first article which summarizes the provisions of Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT). The article gives only the theoretical insights along with example for sound understanding of the provisions. In my next article will share practical issues such as arising on amalgamation, applicability of section 14A, etc along with implication of new Companies Act, 2013 on MAT and its comparison to Companies Act, 1956. So now I shall proceed for the article.

The way the article shall precede is as follows:

- Background and Objective

- Computation of Book Profit

- Comparison of Normal Provisions and MAT Provisions through illustration

- MAT Credit

- Report of a “Accountant”

Background and Objective

Basic objective behind introduction of MAT provisions was to levy tax on zero tax companies.

Zero tax companies are companies showing profits in books and also paying out dividends, however, not paying tax/marginal tax on account of various incentives( for example: incentives under chapter  VIA- C – in relation to certain incomes, etc). Therefore, Government wanted to get some tax from these companies also.

- Section 115JB was introduced by Finance Act, 2000 i.e. AY 2001-02 – Provides for levy of tax on book profits at 18.5%.

- Provisions applicable on companies except companies carrying on life insurance business.

- Section 115JB starts with “Not Withstanding anything contained in any other provisions of the Act”. Therefore it overrules entire Act and itself provides for computation of tax on book profits called “MAT”

- MAT is payable only if tax as per normal provisions of the Act is less than 18.5% of “book profits”.

- P&L account/statement is to be prepared in accordance with Schedule III of Companies Act, 2013(earlier Schedule VI of the companies Act, 1956); exception for banking, insurance, power generation companies, etc.

Computation of Book Profit

The following amount(s) need to be deducted or added to profit/loss as shown in profit & loss statement/account while computing book profit (Provided they have been already been credited to debited to the P&L statement/account respectively so as to nullify there effect)

Reductions

Additions

Amount withdrawn from any reserve or provision

Amount carried to any reserves by whatever name called (other than reserves relating to shipping business created under Section 33AC)

Amount of income covered by section 10 [except section 10(38)], section 11 or section 12

Amount of expenditure in relation to incomes covered by section 10 [except section 10(38)];

The amount of loss brought forward or unabsorbed depreciation whichever is less as per books of account. 

Note: Loss and unabsorbed depreciation to be considered in the books as at the commencement of the year

Amounts of dividends paid or proposed to be paid;

Depreciation excluding depreciation on account of revaluation of assets.

Any amount withdrawn from the revaluation reserve and credited to P&L A/c, to the extent it does not exceed the amount of depreciation on account of revaluation of assets

Amount of depreciation as per tax provisions.

Balance in revaluation reserve relating to revalued asset on the retirement or disposal of such asset.

Amount of deferred tax, if any

Amount of  deferred tax or provisions thereof;

Amount of Income tax paid, payable or provision thereof;

However,

Income tax penalty or its interest .

Tax including Wealth tax penalty or its interest.

Penalties under other laws

Need not be added back

- Amounts set aside as provision for diminution in the value of assets; Example: Provision for bad debts to be added

- Amounts set aside to provisions made for meeting unascertained liabilities,

However, provisions made on scientific basis are not to added back for Example: Provision for encashment of leave (SC Judgment: BHARAT EARTH MOVERS)

Profits of a sick industrial company subject to certain conditions

Provisions for loss of subsidiaries

Comparison of Normal Provisions and MAT Provisions through illustration

Particulars

Normal Provisions

MAT Provisions

Net Profit as per P&L Account

10,000

10,000

Add: Amount carried to General Reserve

1,000

1,000

Provision created for Warranty on scientific basis

-

-

Less: Dividend Income[Exempt under section 10(34)

(1,500)

(1,500)

Add: Loss on sale of depreciable assets

1,000

-

Net profit after above adjustments

10,500

9,500

Add: Depreciation in books

2,000

2,000

Less: Tax Depreciation/Tax Depreciation

(3,000)

(2000)

Gross Taxable Income/ Book profit

9,500

9,500

Less: Brought forward loss

(10,500)

5000

(Higher B/F loss than U. Dep.)

Loss to be carried forward

1000

4500

Tax/MAT (18.5%)

Nil

 832.5

MAT Credit

- Credit of MAT paid can be carried forward for a period of 10 years immediately succeeding the year in which MAT credit becomes allowable(from the year when tax becomes payable under normal provisions of Act).

- MAT credit allowable for a particular year is difference between tax computed as per normal provisions of Act and MAT payable with respect to book profits of that particular financial year.(Therefore, balance MAT credit allowable shall be carried forward to next financial year, see below example).

- Interest under 234A / 234B is charged after MAT credit allowable is set off (as above) against tax payable.

- MAT credit should be inclusive of surcharge and education cess.

AY

Tax as per MAT provisions

Tax as per normal provisions

MAT Credit

set off

Tax payable

MAT

Credit c/f

2010-11

2000

2500

Nil

2500

Nil

2011-12

2500

2100

Nil

2500

400

2012-13

1800

2100

300

1800

100

Therefore, MAT credit provisions ensure that the company will always pay a minimum tax (as can be seen in year 2012-13) called MAT.

Report of a “Accountant”

- Report from CA to be furnished electronically as per rule 12(2) in Form 29B to certify book profits are computed as per Sec.115JB.

- Report to be obtained in all cases irrespective of the fact that company pays MAT or not (since MAT liability can be ascertained only after comparing normal tax liability with tax on book profits), however, disputable since Section 115JB (4) uses the words “Every Company to which this section applies” i.e. companies to which MAT actually becomes applicable.

- No penalties are prescribed for not obtaining report or for not filing the same along with the tax return. However on a prudent basis the same should be filed.

- Section 139(9) providing for defective return does not consider tax return to be defective if form 29B is not accompanied.

Section 115JC – Alternate Minimum Tax (‘AMT’)

Introduction

Finance Act 2012 introduced Chapter XII-BA whereby AMT was made applicable to

- LLP’s from AY 2012-2013.

- Later on also made applicable to “Persons other than corporate assessee” from  AY 2013-2014

Applicability

- Assesses claiming exemption under section 10AA and deductions under Chapter VIA-C – in relation to certain incomes (except section 80P- Deduction for Co-Operative Societies).

- Section not applicable if adjusted Total Income (‘ATI’) of individual, HUF, AOP and BOI does not exceed Rs. 20 lakh.

Computation

ATI = Total Income + Deductions claimed under section 10AA, Chapter VIA (except section 80P)

Rate of Tax

ATI liable to income-tax at the rate of 18.5% (as increased by surcharge and cess as applicable ) if tax payable under normal provisions is less than 18.5% of ATI

AMT Credit

AMT credit = Tax paid as per AMT less tax payable under other provisions of the Act

In next article, we shall take the practical insights on this topic such as issues arising on amalgamation, applicability of section 14A, etc along with implication of new Companies Act, 2013 on MAT and its comparison to Companies Act, 1956.

Hope you got the sound understanding of the concept of MAT & AMT.

For any kind of professional Assistance, please reach out to me freely at ca.shivashish@gmail.com

Regards,

CA. Shivashish Karnani

B.Com(H), ACA (Former Tax Consultant-Ernst & Young)

Commerce Faculty

Address: F-50, Near Gurudwara, Madhu Vihar, I.P. Extension, Patparganj, Delhi-92

Network Offices in Kashmere Gate & Laxmi Nagar

"Loved reading this piece by Shivashish?
Join CAclubindia's network for Daily Articles, News Updates, Forum Threads, Judgments, Courses for CA/CS/CMA, Professional Courses and MUCH MORE!"




 



Category Corporate Law, Other Articles by - Shivashish 



Comments


update