Benefits of Minimum Alternate Tax

What is Minimum alternate tax (MAT)

The concept of MAT was introduced under Income Tax Act to tax companies making high profits and declare dividends to their shareholders but have no significant taxable income because of exemptions, deductions and incentives.

The primary cause is not tax evasion or a lack of adequate government policies but the feature of tax system – incentives, deduction and exemptions

The intent of introducing MAT was to ensure that no taxpayer with substantial income can avoid tax liability by using exclusions, deductions and incentives.

The Companies Act and Income Tax Act deals in different situation hence they both have different provisions regarding allowable expenditures.

The expenses disallowed under companies act are also disallowed under income tax act, but there are some expenditure which are disallowed under income tax but still allowed to be deducted while calculating the profits under Companies Act.

With the result of such provisions the companies are able to reduce their profits and pay low revenue to the credit of government.

For example: In the judgment Echjay For goings P Ltd.

It was decided: if the sum is debited to the profit and loss a/c under the provisions of companies act, it will not be added to compute Book profit, even if the same is disallowed under the income tax act.

Procedure of MAT:

Presently MAT is applicable to Companies (Domestic and Foreign)

But here only MAT on company’s u/s 115JB is discussed.

Under the provisions of Section 115JB, where the income tax calculated under the income tax act is less than 18.5 % of the book profit, then such book profit shall be deemed to the total income of the assessee and tax payable by the assessee shall be 18.5 % on book profits.

How to compute Book profit is already discussed.

No additions or subtraction can be made from the profit declare by the company in accordance with the provisions of companies act, other than the items mentioned under section 115 JB (i.e. items mentioned – how to calculate the book profit for MAT applicability)

Advance tax is applicable, if tax is computed on the 18.5% of book profits.

MAT credit availability

Rs. In thousands

1	2	3 = 2 x 30%	4	5 = 4 x 18.5%	6 = whichever is higher between 3 & 5	7 = difference between 6 & 3	8
Financial year	Total taxable Income	Tax at Normal rates	Book Profit	Minimum Alternate Tax	Tax Liability	MAT credit	Cumulative MAT credit
11-12	100	30	280	51.8	51.8	21.8	21.8
12-13	200	60	500	92.5	92.5	32.5	54.3
13-14	300	90	250	46.25	46.25*	-43.75	10.55
14-15	400	120	250	46.25	109.45**	-10.55	NIL

*MAT amount of 13-14. Difference between 90 and 46.25 is MAT credit availed ie. 43.75. This amount is deducted from the total entitlement of 54.3. Balance Rs.10.55 shall be adjusted in the following year

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