Set off of losses in case of mat
This query is : Resolved
24 August 2013
PVT LTD COMPANY HAVING OPENING BALACNE IN PROFIT & LOSS A/C ON 1.04.2011 1500000 IN CREDIT & DURING THE YEAR F.Y 11-12 COMPANY MADE LOSS OF RS.1800000 AFTER DEPRECTION OF RS.1400000 SO COMPANY PAID MADE MAT AS PER INCOME Tax & LOSS OF 1800000 WAS C/F IN RETURN,IN BOOKS COMPANY SHOWED PFOFIT & LOSS CLOSING BALACE ON 31.3.2012 300000 DEBIT BALANCE NOW IN F.Y YEAR 12-13 COMPANY MADE PROFIT OF 1000000 WHICH WAS SET OFF AGANIST LAST YEAR B/F LOSS BUT IN MAT CAN I SET OFF LOSS OF 400000
AS 400000 LOSS {1800000-1400000(DEPRECIATION OF LAST YEAR) IS LOWER AS COMPARED TO DEPRECTION 1400000.
OR COMPANY CAN NOT SET OFF FULL 400000 AS 300000 WAS SETOFF AGANIST OPENING BALANCE...
AS 400000 LOSS {1800000-1400000(DEPRECIATION OF LAST YEAR) IS LOWER AS COMPARED TO DEPRECTION 1400000.
OR COMPANY CAN NOT SET OFF FULL 400000 AS 300000 WAS SETOFF AGANIST OPENING BALANCE...
25 August 2013
See the decision of AAR in the case of Rashtriya Ispat Nigham.
25 August 2013
thanx a ton i read that but i m stil confused, can u tell me wat sould i do???please???
25 July 2025
Let's go step by step to clarify how **MAT (Minimum Alternate Tax)** and **carry-forward losses** interact in this case.
### Key Points from Your Question:
* **Company** had an opening balance in **Profit & Loss A/c** of ₹1,500,000 (credit balance) on **01.04.2011**.
* During **FY 2011-12**, the company made a **loss of ₹1,800,000**, after depreciation of ₹1,400,000.
* As per the provisions of **MAT (Section 115JB)**, MAT was paid, and the company carried forward a **loss of ₹1,800,000** in the return.
* At the end of **FY 2011-12**, the company showed a **closing balance of ₹300,000** in the **Profit & Loss A/c** (debit balance).
* In **FY 2012-13**, the company made a profit of **₹1,000,000**, which was set off against the **brought forward loss** of ₹1,800,000.
* The question is whether the company can set off a **MAT loss** of ₹400,000.
---
### **Key Concepts to Understand:**
1. **Minimum Alternate Tax (MAT)**:
* MAT is applicable to **companies** that pay tax based on the **book profits** (as per **Section 115JB**) instead of regular income tax.
* If the company’s **book profit** is higher than the regular income tax, it pays **MAT** on that higher profit.
2. **Carry-forward Losses Under MAT**:
* If a company **pays MAT**, the excess MAT paid can be carried forward as **MAT Credit** and **set off** against future regular tax liabilities.
* However, the **carry-forward losses** of regular business operations (as per normal accounting) are **not directly related to MAT**. MAT losses are calculated based on the **book profit**, and they can be **carried forward** only for setting off against future **book profits** under MAT, not against regular income.
3. **Depreciation Adjustment**:
* **Depreciation** affects both the **book profits** and the **regular income tax profits**.
* The **depreciation** is deducted from the **book profit** under **MAT**, but when computing regular income tax, depreciation under **Section 32** is deducted from the regular profits.
---
### **Step-by-Step Analysis:**
1. **Understanding the MAT Adjustment:**
* In **FY 2011-12**, the company had a loss of **₹1,800,000** (after deducting depreciation of ₹1,400,000).
* After the **depreciation of ₹1,400,000**, the **remaining loss of ₹400,000** is effectively a **loss under MAT**, which means the company has no book profit for **MAT purposes** in that year.
2. **MAT Credit in FY 2011-12:**
* The company pays MAT based on the **book profits**.
* Even though the company made a loss in the regular accounts, **MAT credit** would be available for the excess tax paid under **Section 115JB**.
* If there’s a **book loss of ₹1,800,000**, the **MAT credit** would be available for future set-off against **book profits** in subsequent years.
3. **MAT Loss Carry-Forward (FY 2012-13):**
* For **FY 2012-13**, the company made a profit of **₹1,000,000**.
* This profit was first **set off against the brought forward loss of ₹1,800,000** (which reduces the carried forward loss).
* After the set-off, the company’s **remaining brought forward loss** is ₹800,000.
Now, as for the **MAT loss**:
* The **MAT loss** arising due to the depreciation adjustment (₹1,400,000 depreciation) is calculated based on the **book profit**.
* The total **MAT credit** for **FY 2012-13** can be set off **against book profits** in subsequent years.
* In this case, **₹400,000** can be set off against any **future MAT payable**.
---
### **Answer to Your Query:**
* The **MAT loss** of **₹400,000** (which is the **depreciation effect** on book profits) can be carried forward and set off **against future MAT** liabilities.
* **Regular business losses** (i.e., losses in the profit and loss account after depreciation) can be set off against future **business income**, but **MAT loss** (the difference created by depreciation) is specifically for **MAT purposes**.
Thus, in **FY 2012-13**, the company can set off the **₹1,000,000 profit** against the **brought forward business loss** of **₹1,800,000** (leaving a balance of ₹800,000).
The **₹400,000 MAT loss** is a **separate MAT credit** that can be carried forward and set off **only against future MAT payable**, not regular tax profits.
---
### **Conclusion:**
* **The ₹400,000 loss (due to depreciation)** in **MAT calculations** cannot be set off against **regular business income**. It is treated as **MAT credit** that can be carried forward.
* **The ₹1,000,000 profit in FY 2012-13** can be set off against the **brought forward loss of ₹1,800,000** (leaving ₹800,000). The MAT credit of ₹400,000 is a separate matter and can be utilized against future MAT liabilities.
---
Let me know if this clarifies things further, or if you need additional examples!
### Key Points from Your Question:
* **Company** had an opening balance in **Profit & Loss A/c** of ₹1,500,000 (credit balance) on **01.04.2011**.
* During **FY 2011-12**, the company made a **loss of ₹1,800,000**, after depreciation of ₹1,400,000.
* As per the provisions of **MAT (Section 115JB)**, MAT was paid, and the company carried forward a **loss of ₹1,800,000** in the return.
* At the end of **FY 2011-12**, the company showed a **closing balance of ₹300,000** in the **Profit & Loss A/c** (debit balance).
* In **FY 2012-13**, the company made a profit of **₹1,000,000**, which was set off against the **brought forward loss** of ₹1,800,000.
* The question is whether the company can set off a **MAT loss** of ₹400,000.
---
### **Key Concepts to Understand:**
1. **Minimum Alternate Tax (MAT)**:
* MAT is applicable to **companies** that pay tax based on the **book profits** (as per **Section 115JB**) instead of regular income tax.
* If the company’s **book profit** is higher than the regular income tax, it pays **MAT** on that higher profit.
2. **Carry-forward Losses Under MAT**:
* If a company **pays MAT**, the excess MAT paid can be carried forward as **MAT Credit** and **set off** against future regular tax liabilities.
* However, the **carry-forward losses** of regular business operations (as per normal accounting) are **not directly related to MAT**. MAT losses are calculated based on the **book profit**, and they can be **carried forward** only for setting off against future **book profits** under MAT, not against regular income.
3. **Depreciation Adjustment**:
* **Depreciation** affects both the **book profits** and the **regular income tax profits**.
* The **depreciation** is deducted from the **book profit** under **MAT**, but when computing regular income tax, depreciation under **Section 32** is deducted from the regular profits.
---
### **Step-by-Step Analysis:**
1. **Understanding the MAT Adjustment:**
* In **FY 2011-12**, the company had a loss of **₹1,800,000** (after deducting depreciation of ₹1,400,000).
* After the **depreciation of ₹1,400,000**, the **remaining loss of ₹400,000** is effectively a **loss under MAT**, which means the company has no book profit for **MAT purposes** in that year.
2. **MAT Credit in FY 2011-12:**
* The company pays MAT based on the **book profits**.
* Even though the company made a loss in the regular accounts, **MAT credit** would be available for the excess tax paid under **Section 115JB**.
* If there’s a **book loss of ₹1,800,000**, the **MAT credit** would be available for future set-off against **book profits** in subsequent years.
3. **MAT Loss Carry-Forward (FY 2012-13):**
* For **FY 2012-13**, the company made a profit of **₹1,000,000**.
* This profit was first **set off against the brought forward loss of ₹1,800,000** (which reduces the carried forward loss).
* After the set-off, the company’s **remaining brought forward loss** is ₹800,000.
Now, as for the **MAT loss**:
* The **MAT loss** arising due to the depreciation adjustment (₹1,400,000 depreciation) is calculated based on the **book profit**.
* The total **MAT credit** for **FY 2012-13** can be set off **against book profits** in subsequent years.
* In this case, **₹400,000** can be set off against any **future MAT payable**.
---
### **Answer to Your Query:**
* The **MAT loss** of **₹400,000** (which is the **depreciation effect** on book profits) can be carried forward and set off **against future MAT** liabilities.
* **Regular business losses** (i.e., losses in the profit and loss account after depreciation) can be set off against future **business income**, but **MAT loss** (the difference created by depreciation) is specifically for **MAT purposes**.
Thus, in **FY 2012-13**, the company can set off the **₹1,000,000 profit** against the **brought forward business loss** of **₹1,800,000** (leaving a balance of ₹800,000).
The **₹400,000 MAT loss** is a **separate MAT credit** that can be carried forward and set off **only against future MAT payable**, not regular tax profits.
---
### **Conclusion:**
* **The ₹400,000 loss (due to depreciation)** in **MAT calculations** cannot be set off against **regular business income**. It is treated as **MAT credit** that can be carried forward.
* **The ₹1,000,000 profit in FY 2012-13** can be set off against the **brought forward loss of ₹1,800,000** (leaving ₹800,000). The MAT credit of ₹400,000 is a separate matter and can be utilized against future MAT liabilities.
---
Let me know if this clarifies things further, or if you need additional examples!
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