12 December 2013
SIR, IN COMPUTING BOOK PROFIT THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION WHICHEVER IS LESS SHALL BE REDUCED FROM BOOK PROFIT SIR, I AM NOT CLEAR THAT WHAT WILL BE THE TREATMENT OF DEFERRED TAX IN COMPUTING BOOK PROFIT FOR CALCULATION OF MAT
18 July 2024
In the context of Minimum Alternate Tax (MAT) calculation under section 115JB of the Income Tax Act, 1961, deferred tax adjustments play a crucial role. Here’s how deferred tax is treated in computing book profit for MAT purposes:
### Treatment of Deferred Tax in MAT Calculation:
1. **Deferred Tax Asset (DTA):** - **Addition to Book Profit:** If there is a Deferred Tax Asset (DTA) as per the books of accounts, it is generally added back to the net profit as per the profit and loss account while computing book profit under MAT. - DTA represents future tax benefits that will reduce future taxable income, but for MAT purposes, it is added back because MAT is computed based on a prescribed percentage of book profits.
2. **Deferred Tax Liability (DTL):** - **Deduction from Book Profit:** Deferred Tax Liability (DTL) is deducted from the net profit as per the profit and loss account. - DTL represents future tax obligations that will increase future taxable income. Deducting DTL reduces book profits for MAT calculation.
### Example Illustration: Let's illustrate this with a hypothetical scenario:
- **Net Profit as per Profit and Loss Account:** ₹10,00,000 - **Deferred Tax Asset (DTA):** ₹1,00,000 - **Deferred Tax Liability (DTL):** ₹50,000
#### Calculation Steps: 1. **Starting with Net Profit:** - Net Profit as per Profit and Loss Account: ₹10,00,000
2. **Adjustments for MAT Calculation:** - **Add DTA:** ₹1,00,000 (Added back to net profit) - **Deduct DTL:** ₹50,000 (Deducted from net profit)
3. **Adjusted Book Profit for MAT Calculation:** - Adjusted Book Profit = Net Profit + DTA - DTL - Adjusted Book Profit = ₹11,50,000
4. **Applying MAT Rate:** - MAT Rate: 18.5% (as per current provisions) - MAT Payable = Adjusted Book Profit × MAT Rate
### Conclusion: In summary, for the purpose of calculating Minimum Alternate Tax (MAT) under section 115JB, deferred tax adjustments are made by adding back Deferred Tax Assets (DTA) and deducting Deferred Tax Liabilities (DTL) from the net profit as per the profit and loss account. This adjusted book profit is then subject to MAT at the prescribed rate. Proper consideration and adjustment of DTA and DTL ensure accurate computation of MAT liability, aligning with the provisions of the Income Tax Act.
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