MAT

Minimum Alternate Tax Section 115JB

OBJECTIVE :

To Counter increase in number of Zero tax paying companies.

Company earning substantial income:

Paying handsome dividends.
Not paying tax on account of various incentives.

All profitable companies should pay minimum corporate tax.

APPLICABILITY

Companies
Foreign Company
Banking, Electricity, Insurance, NBFC
Section 25 Companies

Procedure for Computation of MAT

STEP
1
2
3
4
5

PROCEDURE
Compute Total Income under Income Tax Act, 1961
Compute Book Profit u/s 115JB.
Compute tax on Total Income at rates applicable for Companies under
Income Tax Act.
Compute Tax at 18.5% on Book Profit.
Tax payable = Higher of Step 3 or Step 4

Computation of Book Profit

Net Profit as per Statement of Profit and Loss:

For Companies governed by The Companies Act Statement of Profit and Loss as per Revised Schedule VI.

For all other Companies Statement of Profit and Loss prepared in accordance with the provisions of the Act
governing such Company.

Computation of Book Profit

Add : If debited to Statement of Profit and Loss
1. Income Tax paid or payable or provision for tax
2. Amount transferred to reserves by whatever name called
3. Provision for unascertained liabilities
4. Provision for losses of subsidiary Companies.
5. Dividends paid / proposed

6. Expenditure related to exempt incomes u/s 10/11/12 [except 10(38)]

7. Amount of Depreciation
8. Deferred Tax including the provision created
9. Any amount set aside as provision for Diminution in Value of assets.
Amount standing in Revaluation Reserve relating to Revalued Asset on the retirement or disposal of such asset
Less: If Credited to Statement of Profit and Loss
1. Amount withdrawn from any reserves / provisions
2. Income exempt u/s 10/ 11/ 12 [except 10(38)]
3. Brought forward loss (other than depreciation) or unabsorbed depreciation, whichever is less, as per books of
accounts
4. Profits derived from sick industrial undertakings.
5. Depreciation debited excluding depreciation on account of revaluation of asset
6. Withdrawal from revaluation reserve to the extent it does not exceed the amount of Depreciation on account of
revaluation.
7. Profits of a Tonnage Tax Company
8. Amount of deferred Tax
Technical issues on MAT Section 115JB
1. Can AO recompute MAT liability by making certain adjustments outside the P&L a/c Books are prepared as per
companies Act?
AO has no power to disturb Book profits if accounts so prepared are accepted as presenting a true and fair view
by Statutory Auditors.
Apollo Tyres Limited vs CIT (255 ITR 273) (SC)
2. Books not prepared as per Companies Act ?
AO can recalculate the Net Profit
3. No fraud or misrepresentation but only change of opinion?
AO cannot disturb the profit as shown by the assesse
4. Whether Profits on sale of assets, investment credited to profit and loss account be excluded for the purpose Of
computing MAT ?
Capital gains taxable u/s 45 and credited to P&L a/c to be included in book profits

MAT CREDIT SECTION 115JAA

Available when Assessee pays tax on Book Profit
STEP 1. Tax on Book Profit
STEP 2. Tax on Total Income
STEP3. MAT Credit = Step 1 Step 2
MAT Credit can be availed in 10 Subsequent Assessment Years.
Availing MAT Credit
Applicable when Assessee paid Tax on Total Income
STEP 1 Tax on Total Income
STEP 2 Tax on Book Profit
STEP 3 Difference of Tax = Step 1 Step 2
STEP 4 Availed MAT Credit = Aggregate available MAT Credit or Step 3,whichever is less.
STEP 5 Net Tax Payable = Tax on Total Income (Step 1) Step 4.
CASE 1/ YEAR 1
Total Income

Rs. 3,00,000

Book Profit

Rs.20,00,000

Applicable when assessee paid tax on Book Profit

Step 1

Tax on Book Profit = Rs.3,81,100

Step 2

Tax on Total Income = Rs.92,700

Step 3

MAT Credit = Step 1 Step 2 =

Rs.2,88,400

Year 2 Availing MAT Credit

Total Income

Rs. 7,00,000

Book Profit

Rs.10,00,000

Step 1

Tax on Total Income = Rs.2,16,300

Step 2

Tax on Book Profit = Rs.1,90,550

Step 3

Difference of Tax = Step1 Step2 = Rs.25,750

Step 4

Availed MAT Credit = Actual MAT Credit (2,88,400) or Step 3 whichever is less. = 25,750

Step 5

Net Tax Payable = Step1 Step 4 = Rs.1,90,550

Step 6

Balance of MAT Credit = Rs.2,88,400 Rs.25,750 = Rs.2,62,650

Year 3 Availing MAT Credit

Total Income

Rs. 10,00,000

Book Profit

Rs. 8,00,000

Step 1

Tax on Total Income = Rs.3,09,000

Step 2

Tax on Book Profit = Rs.1,52,440

Step 3

Difference of Tax = Step1 Step2 = Rs.1,56,560

Step 4

Availed MAT Credit = Actual MAT Credit (2,62,650) or Step 3 whichever is less = 1,56,560

Step 5

Net Tax Payable = Step1 Step 4 = Rs. 1,52,440

Step 6

Balance of MAT Credit = 2,62,650 1,52,440 = 1,10,210

1. The taxable income of Essem Minerals Pvt. Ltd. computed as per the provisions of Income-tax Act is Rs. 8,40,000.
Book profit of the company computed as per the provisions of section 115JB is Rs. 18,40,000. What will be the tax
liability of Essem Minerals Pvt. Ltd. (ignore cess and surcharge)?
Ans. The tax liability of a company will be higher of: (i) Normal tax liability, or (ii) MAT. Normal tax rate applicable to
an Indian company is 30% (plus cess and surcharge as applicable). Tax @ 30% on Rs. 8,40,000 will amount to Rs.
2,52,000 (plus cess). Book profit of the company is Rs. [As amended by Finance Act, 2015] 18,40,000. MAT
liability (excluding cess and surcharge) @ 18.50% on Rs.18,40,000 will come to Rs. 3,40,400. Thus, the tax
liability of Essem Minerals Pvt. Ltd. will be Rs. 3,40,400 (plus cess as applicable) being higher than the normal tax
liability.
2. The tax liability of Essem Minerals Ltd. for the financial year 2015-16 under the normal provisions of the Incometax Act is Rs. 8,40,000 and the liability as per the provisions of MAT is Rs. 10,00,000. Will the company be entitled
to claim any MAT credit in the subsequent year(s) as per the provisions of section 115JAA?
Ans. A company paying MAT is entitled to claim the credit of MAT paid in excess of normal tax liability. In this case the
liability of Essem Minerals Ltd. for the year 2015-16 under the normal provisions is Rs. 8,40,000 and as per the
provisions of section 115JB it is Rs. 10,00,000 (which is higher than normal tax liability) and, hence, the company
has to pay Rs. 10,00,000, i.e., liability as per MAT provisions. As per section 115JAA, if in any year a company
pays its tax liability as per MAT, then it can claim MAT credit being the excess MAT paid over the normal tax
liability. In this case, as the liability of MAT is higher, and, hence, the company will be entitled to claim MAT credit
of Rs. 1,60,000 (being excess of MAT over normal tax liability of Rs. 8,40,000).

3. The tax liability of Essem Energy Ltd. for the financial year 2015-16 under the normal provisions of the Incometax Act is Rs. 18,40,000 and the liability as per the provisions of MAT is Rs. 18,00,000. It has brought forward
MAT credit of Rs. 2,00,000. Can the company adjust the MAT credit? If, yes then how much and what will be the
tax liability of the company after adjustment of MAT credit
Ans. MAT credit can be adjusted in the year in which the liability of the company as per the normal provisions is more
than the MAT liability. In this case the liability as per the normal provisions of the Income-tax Act is Rs. 18,40,000
and the liability as per the provisions of MAT is Rs. 18,00,000. Liability as per the normal provisions is more than
liability as per the provisions of MAT and, hence, the company can adjust the MAT credit. The set off in respect of
brought forward MAT credit shall be allowed in the subsequent year(s) to the extent of the difference between the
tax on total income as per the normal provisions and liability as per the MAT provisions. Thus, after set off of MAT
credit, the liability of the company cannot be less than liability as per the provisions of MAT. In this case, the
liability as per MAT is Rs. 18,00,000, and, hence, after claiming set off of the MAT credit, the liability of company
cannot be less than Rs. 18,00,000. Hence, out of the credit of Rs. 2,00,000 the company can claim credit of Rs.
40,000 only and the balance credit of Rs. 1,60,000 can be carried forward to next year(s).