20 November 2011
In the case of companies, if tax payable on its total income as computed under the I.T. Act, 1961 in respect of any previous years, is less than 15% (for assessment year 2010-11 and 18% from assessment year 2011-12) of its “book profit”, then such book profit shall be deemed to be the total income of the company and tax shall be payable at 15% (for assessment year 2010-11 and 18% from assessment year 2011-12) on such total income.
“Book Profit” means the net profit as shown in the profit and loss account, as increased / decreased by certain specified items mentioned in section 115JB
Nor mally, a comapny is liable t o pay t ax on t he income comput ed in accor dance wit h t he pr ovisions of t he income t ax Act , but t he pr of it and loss account of t he company is pr epar ed as per pr ovisions of t he Companies Act . Ther e wer e lar ge number of companies who had book pr of it s as per t heir pr of it and loss account but wer e not paying any t ax because income comput ed as per pr ovisions of t he income t ax act was eit her nil or negat ive or insignif icant . In such case, alt hough t he companies wer e showing book pr of i t s and declar ing dividends t o t he shar eholder s, t hey wer e not paying any income t ax. These companies ar e popular ly known as Zer o Tax companies. Inor der t o br ing such companies under t he income t ax act net , MAT was int r oduced.
Backgr ound:
The levy of a minimum t ax on compani es was f ir st int r oduced t hr ough sect ion 80VVA by t he Finance Act , 1983 w.e.f . A.Y. 1984- 85. The met hod adopt ed by t his sect ion was t o place a ceiling on the aggr egat e quant um of incent i ves available under var ious pr ovisions of t he Act . However , t he unabsor bed incent ives wer e allowed t o be car r ied f or war d and set of f against t axable income in f ut ur e year s. The concept of t ax on book pr of it s was int r oduced or iginally under sect ion 115J by t he Finance Act , 1987 wit h ef f ect f r om A.Y. 1988- 89 and it was wit hdr awn wit h ef f ect f r om A.Y. 1990- 91. Her e, t he t ax was levied on 30% of Book Pr of it s . Subsequent ly t he concept was r eint r oduced wit h a f ew changes, imposing Minimum Alt er nat e Tax (MAT) under sect ion 115JA wit h ef f ect f r om A.Y. 1997- 98 and had ef f ect up t o A.Y.2000- 01. Her e, if t he t axable income of a company comput ed under t his Act , in r espect of any pr evious year r elevant t o t he assessment year commencing on or af t er 1.4.97 but bef or e 1.4.2001 is less t han 30 % of it s book pr of it s, t he t ot al income of such company, char geable t o t ax f or t he r elevant pr evious year shall be deemed t o an amount equal t o 30 % of such book pr of it s . Sect ion 115JB was i nt r oduced in Finance Act , 2000 w.e.f . 1.4.2001, wher eby, a company s hall be liable t o pay higher of t ax comput ed under Income Tax Act pr ovisions and t ax comput ed under Sec115JB.
Applicability:
The pr ovisions of t his chapt er ar e applicable only t o Companies and not t o any ot her assess ee like Individual, HUF, Par t nership Fir m, et c. St at ut or y Pr ovision of Sect ion 115JB as ment ioned under Income Tax Act ,1961 115JB. (1) Not wit hst anding anyt hing cont ained in any ot her pr ovision of t his Act , wher e in t he case of an assessee, being a company, t he income- t ax, payable on t he t ot al income as comput ed under t his Act in r espect of any pr evious year r elevant t o t he assessment year commencing on or af t er t he 1st day of Apr il, 2010, is less t han f if teen per cent of it s book pr of it , such book pr of it shall be deemed t o be t he t ot al income of t he assessee and t he t ax payable by t he assessee on such t ot al income shall be t he amount of i ncome- t ax at t he r at e of f if t een per cent . * For calculat ion of Books Prof it s ref er Annexure I
Rate of tax u/s 115JB
Tax r at e applicable u/s 115JB f or var ious assessment year s ar e as f ollows : Per iod MAT Rat e A.Y.2001- 02 t o A.Y.2006- 07 7.5% A.Y.2007- 08 t o A.Y. 2009- 10 10% A.Y.2010- 11 15% A.Y.2011- 12 onwar ds 18%
Exclusion fr om applicabilit y of Sec 115JB
w.e.f . 1.4.2005, t he pr ovisions of Sec 115JB s hall not appl y t o t he income f r om any business car r ied on, or ser vices r ender ed, by an ent r epr eneur or a Developer , in a Unit or Special Economic Zone.
14 May 2013
thanks for a great explanation rajan sir,ur answer clarified me the whole concept of MAT and consequently i went through the entire chapter in one breath. thanks for such great explanation.
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