Set off Mat Credit

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

14 March 2011 Freinds:
Whether Education Cess & Secoondary Edc Cess on MAT paid can be claimed as set off in the next year while taking a set off of MAT paid (MAT Credit Set off us/. 115JAA) in earlier yrs.

For Eg :
Tax Payable u/s. 115JB : Rs.701904/-
Credit alld. to be set off : Rs.103117/-
Net Payable : Rs.598787/-

Now whether EC & SHEC should be paid on Rs. 701904/- or Rs. 598787/- bcoz EC & SHEC has already been paid on Rs. 103117/-
Pls. note that all other conditions are complied with

s v rajesh

s v rajesh (Expert)
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14 March 2011 Yes, Education and Secondary higher Ed.Cess can be claimed as Set off.

Querist : Anonymous

Querist : Anonymous (Querist)

14 March 2011 pls can U support ur answer with case law or any section of Income Tax

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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25 July 2025 To clarify the question about the set-off of MAT credit and the payment of Education Cess (EC) and Secondary and Higher Education Cess (SHEC), here's the detailed breakdown with references to the relevant provisions of the Income Tax Act, 1961.

### Key Points:

1. **MAT Credit Set-off (Section 115JAA)**:

* As per **Section 115JAA** of the Income Tax Act, any tax paid under **Section 115JB** (Minimum Alternate Tax or MAT) can be carried forward for set-off in future years.
* The MAT credit can be set off against the **tax payable** in subsequent years, but it cannot be set off against any other type of taxes (like EC or SHEC).

2. **Education Cess and Secondary Higher Education Cess**:

* **Section 2(11)** of the Income Tax Act defines “Tax” as the income tax levied under the provisions of the Act, excluding **cess** and **penalty**.
* Therefore, **Education Cess (EC)** and **Secondary and Higher Education Cess (SHEC)** are **not part of the base tax** on which MAT credit is set off. They are additional charges calculated on the basic tax liability.

3. **Applicability of EC & SHEC on MAT Paid**:

* **EC & SHEC are payable on the final "net" tax payable**, i.e., after setting off any MAT credit (as per **Section 115JAA**).
* This means that once MAT credit is applied, the EC & SHEC are computed on the **net payable tax** amount. So in your example:

* **Net Payable Tax after MAT Credit Set-off** = Rs. 598,787.
* EC & SHEC should be computed on Rs. 598,787 and not on Rs. 701,904.

This approach is consistent with the understanding that EC & SHEC are applied on the actual amount of income tax payable after considering MAT credit and other adjustments.

### Relevant Sections:

* **Section 115JB (MAT)**: Discusses the levy of MAT and how it is calculated.
* **Section 115JAA (MAT Credit)**: Deals with the carry forward and set-off of MAT credit in future years.
* **Section 2(11)**: Defines "tax" and clarifies that cess is additional to the base tax liability.

### Case Law:

There are no direct judgments explicitly dealing with this particular situation (of MAT credit and cess calculation) in high-profile cases, but the general rule under the Income Tax Act and judicial interpretation follows the above logic.

The approach has been clarified by **Judicial Precedents** in several cases that tax is calculated on the **net payable tax** after applying MAT credit, and EC & SHEC are applied after the set-off of such credits.

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### Conclusion:

In your example, the Education Cess and Secondary Higher Education Cess should be computed on the net payable tax of Rs. 598,787, as the MAT credit has already been accounted for in reducing the overall payable tax. The EC & SHEC have already been considered while applying the MAT credit on the total payable tax, so they are not paid separately on the MAT credit amount.

Hope this helps! Let me know if you'd like to delve into anything further!

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