Minimum Alternate Tax

Difference between Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT)

Before we proceed with MAT, we have to understand the difference between MAT and AMT.

Minimum Alternate Tax (MAT) is levied on companies as per section 115JB of the Indian Income Tax Act, 1961. And Alternate Minimum Tax (AMT) is levied on limited liability partnerships (LLPs) as per section 115JC.

Minimum Alternate Tax u/s 115JB Income Tax Act India

When the Company needs to pay the Minimum Alternate Tax?

If the income-tax payable by a Company, on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2011, is less than 18.5% of its book profit,

  • such book profit shall be deemed to be the total income of the Company, and

  • the tax payable by the Company on such total income shall be the amount of income-tax at the rate of 18.5% of the book profit.

Example

AB Pvt Ltd has a tax liability on it's normal taxable income of Rs.3 lakhs.

AB Pvt Ltd., has book profit of Rs.20 Lakhs as computed under section 115JB.

Therefore as per section 115JB, tax on the book profit would be Rs.3.70 Lakhs.

Hence, AB Pvt Ltd., has to pay tax MAT (i.e., Rs.3.70 Lakhs), since the normal tax liability (Rs.3.00 Lakhs) is less than 18.5% of the Book Profit.

In Summary

Tax payable by a Company is Higher of the following: -

  • Tax payable at the normal rates prescribed by the Finance Act, or

  • Minimum Alternate Tax @ 18.5% of the Book Profit of the Company computed in accordance with Section 115JB.

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Book Profit

Preparing The Annual Accounts

Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act, 1956.

While preparing the annual accounts including profit and loss account,—

  1. the accounting policies,

  2. the accounting standards adopted for preparing such accounts including profit and loss account,

  3. the method and rates adopted for calculating the depreciation,

shall be the same as have been adopted for the purpose of preparing such accounts and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956.

Calculating Book Profit

For the purposes of this section, “book profit” means the net profit as shown in the profit and loss account for the relevant previous year, as Increased by the following amounts debited to Profit and Loss Account —

  1. Income-tax paid or payable, and the provision thereof, including

    1. any tax on distributed profits under section 115-O or on distributed income under section 115R,

    2. any interest charged under this Act,

    3. surcharge, if any, as levied by the Central Acts from time to time,

    4. Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and

    5. Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time.

  2. Transfer to Reserves (Other than Section 33AC – w.e.f. AY 2003-2004)

  3. Amount set aside to meet unascertained liabilities,

  4. Provision for losses of Subsidiaries,

  5. Dividends Proposed or Paid,

  6. Expenditure relatable to Income (eligible for deduction from Book Profit) exempt under section 10 or 11 or 12,

  7. Amount of depreciation, including amount of depreciation on Revalued amount of Fixed Asset,

  8. Amount of deferred tax and the provision thereof,

  9. Amount or amounts set aside as provision for diminution in the value of any asset.

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Amounts to be Reduced

Such Net Profit, as increased, shall be reduced by the following amounts: -

    Only, if credited to the Profit and Loss Account: -

  1. Amount withdrawn from Reserves or Provisions from those created before 01.04.1997 without debiting Profit and Loss Account,

  2. Amount withdrawn from reserves created on or after 01.04.1997 if such amount was allowed to be charged to Net Profit for the purpose of Section 115JB or Section 115JA,

  3. Income exempt under section 10 [other than 10(38), 10(23G)] or 11 or 12,

  4. Amount of Deferred Tax

  5. Amount withdrawn from Revaluation Reserve to the extent it does not exceed the depreciation on revalued amount of Fixed Asset charged to Profit and Loss Account

  6. Others: -

  7. Amount of depreciation, excluding amount of depreciation on Revalued amount of Fixed Asset,

  8. Lower of the following: -

    1. Brought Forward Loss (as per Books) – Loss does not include Depreciation,

    2. Unabsorbed Depreciation (as per Books),

  9. Profits eligible for deduction under section 80HHC or 80HHE or 80HHF, upto Assessment Year 2005-06

  10. Amount of Profits of Sick Industrial Company, during the period of sickness.

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Other Aspects

The aforesaid computation of Book Profit and Minimum Alternate Tax shall not affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year(s) under the provisions of section 32(2) or of section 32A(3) or section 72(1)(ii) or section 73 or section 74 or of section 74A(3).

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Form 29B Report

Every company to which this section applies, shall furnish a report in the prescribed form 29B from an accountant as defined in the Explanation below section 288(2), certifying that the book profit has been computed in accordance with the provisions of this section.

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Companies in SEZ

The provisions of this section shall not apply to the income accrued or arising from 01-April-2005 to 31-March-2012, from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be.

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