12 February 2015
One of my clients is a power generating company. It will start producing power from 2015-16. U/s 80IA tax holiday is for ten years but it has to pay mat @18.5% during this ten years. However from 11 th year profits become taxable. My query is that whether mat paid for first ten years can be set off against tax payable from 11 the year and up to what time and upto what extent? Pl. Guide me.
03 August 2024
### MAT Credit Utilization for Power Generating Companies
Under the provisions of the Income Tax Act, 1961, here’s how MAT (Minimum Alternate Tax) credit works in relation to tax holidays under Section 80-IA for power-generating companies:
#### **1. MAT Credit Carry Forward and Utilization:**
1. **MAT Payment During Tax Holiday:** - If a power-generating company avails a tax holiday under Section 80-IA, it will not have to pay regular tax during this period. - However, it will still be liable to pay MAT as per Section 115JB.
2. **MAT Credit Accumulation:** - MAT paid during the tax holiday period is accumulated as MAT credit under Section 115JAA. - This MAT credit is carried forward and can be set off against regular tax payable in future years when the company’s income becomes taxable after the expiry of the tax holiday period.
3. **Utilization of MAT Credit:** - The MAT credit accumulated during the tax holiday period can be utilized to offset the regular tax liability that arises once the tax holiday expires. - The MAT credit can be carried forward for up to 10 years from the year in which it was paid.
4. **Extent of Utilization:** - MAT credit can be set off against the regular tax liability to the extent of the MAT credit available. - It can be utilized in the years following the end of the tax holiday period when the company's income is subject to normal tax.
#### **2. Practical Example:**
- **Years of Tax Holiday (2015-16 to 2024-25):** During this period, MAT is paid but no regular tax is payable due to the tax holiday. - **MAT Credit Accumulated:** Assume the MAT paid each year totals ₹5,00,000. - **Total MAT Credit:** ₹50,00,000 over 10 years. - **Post-Tax Holiday (From 2025-26 onwards):** When the tax holiday ends and the company starts paying regular tax, it can use the accumulated MAT credit to offset its regular tax liability.
**Utilization:** - If in FY 2025-26 the company has a regular tax liability of ₹30,00,000, it can use the MAT credit to reduce this liability. - **MAT Credit Set Off:** ₹30,00,000 from the total MAT credit of ₹50,00,000. - **Remaining MAT Credit:** ₹20,00,000, which can be carried forward and utilized in subsequent years.
#### **3. Sunset Clause Extension for Section 80-IA:**
The **Sunset Clause Extension** for Section 80-IA was extended to 31st March 2017 by the Finance Act, 2015. Here is the relevant amendment:
- **Finance Act, 2015:** This amendment extended the date of eligibility for claiming tax holiday under Section 80-IA for infrastructure projects (including power generation) to projects that start before 31st March 2017.
**Reference to the Amendment:** - **Section 80-IA(4)(i):** The Finance Act, 2015 extended the period for claiming tax benefits under Section 80-IA from the original sunset date to new projects commencing before 31st March 2017.
#### **4. Summary of Actions:**
1. **MAT Credit:** - MAT paid during the tax holiday period can be carried forward for up to 10 years. - It can be set off against the regular tax liability in the years following the end of the tax holiday period.
2. **Amendment Reference:** - Finance Act, 2015 extended the tax holiday under Section 80-IA to projects commencing before 31st March 2017.
### **Journal Entries for MAT Credit Utilization:**
**When MAT is Paid:** - **Debit:** MAT Credit Receivable (Asset Account) ₹X - **Credit:** Bank/Cash ₹X
**Utilizing MAT Credit in Future Years:** - **Debit:** MAT Credit Receivable (Asset Account) ₹X - **Credit:** Income Tax Expense (P&L Account) ₹X
This treatment ensures that the company can effectively utilize MAT credit accumulated during the tax holiday period against future tax liabilities.
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