To avoid paying any tax altogether, there have been instances where some companies have taken advantage of the various provisions of the Income Tax Law like exemptions, depreciation, deductions, etc. MAT is a way of ensuring this does not happen and that companies pay a minimum amount of tax.
The objective behind MAT or Minimum Alternate Tax is to facilitate taxation of "zero tax companies", by making such companies liable to pay a minimum tax based on their book profit. This form of tax is applicable to all companies, including foreign companies that have established their presence in India. MAT is a tax levied under Section 115JB of the Income Tax Act, 1961. It was first introduced by the Finance Act, 1987, and made effective from AY 1988-89. Later, it was withdrawn by the Finance Act, 1990, but reintroduced again from 1 April, 1997.
As per the concept of MAT, the tax liability of a company will be higher of the following two provisions:
Tax liability computed as per the normal provisions of the Income Tax Law (30% tax rate plus education cess and surcharge, as applicable) or
Tax computed as per the MAT provision on book profit (18.5% tax rate plus surcharge and education cess, as applicable)
Minimum Alternate Tax or MAT is only applicable to companies and not to individuals, HUFs, partnership firms, etc. Rules pertaining to Section 115JA are applicable to foreign companies that generate profits through their operations in India.
The common features of MAT are as under:
MAT credit: If, during a year, a company has paid tax liability as per MAT, it is entitled to claim credit of excess of MAT paid over the normal tax liability in the following year(s). One can find provisions relating to carry forward and adjustment of MAT credit in Section 115JAA. It must be noted that if MAT credit is not utilized by the company within 15 years (immediately succeeding the assessment year in which the credit was generated), then it will lapse.
MAT report: Every company that is liable to pay MAT is required to furnish a MAT report as prescribed in Form 29B (as per rule 40B of the IT Rules).
Advance Payment of Tax: Under the Income Tax Act, 1961, every assessee has to pay tax in advance in case the advance tax liability is Rs. 10,000 or more during a financial year (as computed in accordance with the provisions of Chapter XVII of the Act). Likewise, all companies are required to pay advance tax under Section 115JB of the Income Tax Act.
Applicability of MAT in Special Economic Zones (SEZs): When MAT was first introduced, MAT directives did not apply to income generated by companies via operations in SEZs. This was, however, amended by the Finance Act, 2011, and a provision was added, which made Section 115JB applicable to all companies earning profits from operations in SEZs.
The objective behind MAT or Minimum Alternate Tax is to facilitate taxation of "zero tax companies", by making such companies liable to pay a minimum tax based on their book profit. This form of tax is applicable to all companies, including foreign companies that have established their presence in India. MAT is a tax levied under Section 115JB of the Income Tax Act, 1961.
Minimum Alternate Tax or MAT is only applicable to companies and not to individuals, HUFs, partnership firms, etc. Rules pertaining to Section 115JA are applicable to foreign companies that generate profits through their operations in India.
Book profit refers to the net profit as shown in the profit and loss account. It is calculated on the basis of Companies Act, 2013. It is increased and decreased by the following items:
Inclusions to net profit:
Income Tax payable, if any calculated, as per normal provisions of IT Act
Amount shifted to any reserve
Provision for losses of subsidiary
Provision of deferred tax
Provision or amount of depreciation
Provision of bad debts
Amount of cost on expenses relating to exemption income under section 10 (except under section 10(38)
Paid/proposed dividends
Exclusions to net profit:
Amount withdrawn from any reserve
Amount of income relating to exemption income under section 10 (except under section 10(38))
Amount of depreciation debited to profit and loss account
Amount of loss brought forward
Amount of deferred tax
If a company pays liability as per MAT during a year, it can claim credit of MAT paid over the normal tax liability in the following year(s). Provisions relating to carry forward and adjustment of MAT credit can be found in Section 115JAA.
Provisions pertaining to MAT apply only to corporate taxpayers, whereas the provisions of AMT are applicable to non-corporate taxpayers. Provisions of AMT apply to non-corporate taxpayers who have claimed deduction i) under section 35AD, ii) under section 80H to 80RRB (excluding 80P), and (iii) under section 10AA.
