What is MAT in Taxation?

What is MAT in Taxation?

MAT stands for Minimum Alternate Tax. Initially, the concept of MAT was introduced for companies and progressively it has been made applicable to all other taxpayers in the form of AMT(Alternative Minimum Tax). 

Objective of levying MAT 

At times it may happen that a taxpayer, being a company, may have generated income during the year, but by taking the advantage of various provisions of Income-tax Law (like exemptions, deductions, depreciation, etc.), it may have reduced its tax liability or may not have paid any tax at all. Due to increase in the number of zero tax paying companies, MAT was introduced by the Finance Act, 1987 with effect from the assessment year 1988-89. Later on, it was withdrawn by the Finance Act, 1990 and then reintroduced by Finance (No. 2) Act, 1996, wef1-4-1997.

The objective of introduction of MAT is to bring into the tax net "zero tax companies" which in spite of having earned substantial book profits and having paid good dividends,  but do not pay any tax due to various tax concessions and incentives provided under the Income-tax Law. Since the introduction of MAT, several changes have been introduced in the provisions of MAT and today it is levied on companies as per the provisions of section 115JB.

As per the concept of MAT, the tax liability of a company will be higher of the following: 

• The tax liability of the company computed as per the normal provisions of the Income-tax Law, i.e., the tax computed on the taxable income of the company by applying the tax rate applicable to the company. 

                                                                    or

•  Tax computed in above manner can be termed as normal tax liability.  Tax computed @ 18.5% (plus surcharge and cess as applicable) on *book profit (manner of computation of book profit is discussed in the later part). The tax computed by applying 18.5% (plus surcharge and cess as applicable) on book profit is called MAT

Note: MAT is levied at the rate of 9% (plus surcharge and cess as applicable) in case of a company, being a unit of an International Financial Services Centre and deriving its income solely in convertible foreign exchange.

*Meaning of book profit

Additions to the Net Profit (If debited to P/l A/c):

1.   Income Tax paid or payable if any calculated as per normal provisions of income tax act.
2.   Transfer made to any reserve
3.   Dividend proposed or paid
4.   Provision for loss of subsidiary companies
5.   Depreciation including depreciation on account of revaluation of assets
6.   Amount/provision of deferred tax
7.   Provision for unascertained liabilities e.g. provision for bad debts
8.   Amount of expense relating to exempt income u/s 10,11,12 (except sec 10AA and 10(38) (It means income u/s 10AA & long-term capital gain exempt u/s 10(38) are subject to MAT).

Deletions to the Net Profit (If credited to P/L A/c)

1.   Amount withdrawn from any reserves or provisions
2.  The amount of income to which any of the provisions of section 10, 11 & 12 except 10AA & 10(38) apply.
3.  Amount withdrew from revaluation reserve and credited to profit & loss account to the extent of depreciation on account of revaluation of the asset.
4.  Amount of loss brought forward or unabsorbed depreciation, whichever is less as per the books of account. However, the loss shall not include the depreciation. (if loss brought forward or unabsorbed depreciation is nil then nothing shall be deducted.)
5.  Amount of Deferred Tax, is any such amount is credited in the profit & loss account
6. Amount of depreciation debited to P/l A/c (excluding the depreciation on revaluation of Assets)

What is MAT CREDIT?

When any amount of tax is paid as MAT by the company, then it can claim the credit of such tax paid in accordance with the provisions of section 115JAA.

Allowable Tax Credit = Tax paid as per MAT calculation — Income tax payable under the normal provision of Income-tax Act, 1961.

(However, no interest shall be paid on this Tax credit by the Department.)

Such tax credit shall be carried forward for 10 assessment year immediately succeeding the assessment year in which such credit becomes allowable.

    

 -Publish By:    ANURAG KHANDELWAL