Tax queries

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Manan Vora (Querist)
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08 September 2010 1)Can someone please explain me the concept of Book profit and when the same is applicable.

2)Similarly the concept of Minimum Alternate Tax

3)Deferred Tax Asset & Deferred Tax Liability

SANJAY TALATI

SANJAY TALATI (Expert)
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08 September 2010 There are no. of deductions and exemptions available under the IT Act,1961. Hence, the taxable profit would be quite less compared to the Book Profit which is arrieved at as per the provisions of Sec. 115JB. Remember, the Book profit does not mean the profit reflected in the P & L A/c but certain additions and deductions is to be made from the Profit shown in the P & L A/c as per Explanation to Sec. 115JB to convert the same into Book profit for MAT purpose.

In such a situation, the company has to pay the Minimum Tax which is called Minimum Alternate Tax.

The Tax to be paid by company is hiogher of :

(i) Tax on total Income computed as per the normal provisions of IT Act
(ii) 15 % of Book profit.

When , tax as per (ii) is higher, the same is the tax liability of the company which is called MAT.

In the same way, because of the difference in the rates of Depreciation as per the IT Act and Companies Act, as also because of the tax holiday enjoyed by the assessee, the tax liability for the current year would be less/high which may go high in the future years (as WDV would reduce faster as per IT because of higher rate of dep and after the expiry of tax holiday period tax liability would enhance), which gives deferred tax liability. In the Reverse situation , there would be deferred tax asset.

Manan Vora

Manan Vora (Querist)
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09 September 2010 Thnak you so much for resolving the query.
But one more thing about which i need clarification is that what are those certain adjustments which need to be made in order to reach to the book profit for the purpose of MAT

SANJAY TALATI

SANJAY TALATI (Expert)
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09 September 2010 The list is lengthy, kindly refer to Explanation to 115JB(1) and (2)to ascertain the Book profit

This is very well explained in

* Direct Taxes Law & Practice-
Dr. Girish Ahuja & Ravi Gupta

* Direct Taxes Law & Practice - V K Singhania

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