Mat,
This query is : Resolved
20 April 2012
what is the MAT, when it is apply?
21 April 2012
MAT is the minimum rate of tax to be paid by the company (Applicable only to the cos irrespective of whether it is a Indian Co or Foreign Co.
Normally, a comapny is liable to pay tax on the income computed in accordance with the provisions of the income tax Act, but the profit and loss account of the company is prepared as per provisions of the Companies Act. There were large number of companies who had book profits as per their profit and loss account but were not paying any tax because income computed as per provisions of the income tax act was either nil or negative or insignificant. In such case, although the companies were showing book profits and declaring dividends to the shareholders, they were not paying any income tax. These companies are popularly known as Zero Tax companies. Inorder to bring such companies under the income tax act net, section 115JA was introduced w.e.f assessment year 1997-98.
Reason for Application:- Government of India found that several Indian company were showing high profits in P/L in Shareholder’s Meeting and at the same time distributing huge dividends, due to that they were’nt declaring any income as per Income tax and showing their taxable income as nil or very negligible. This is why Govt. was not able to generate revenue.
Reason for Variance in Profit:- The main reason for such variance in profit was mainly because of differences in the rate of depreciation under the two Acts.The Company’s Act provided a lower rate of depreciation as per co act and at the same time while computing providing higher rate of depreciation as per IT act.
How to calculate MAT( For Indian Co.) ???
Income tax shall be payable higher of following.:
1.Tax as per as
Normal provision
[Surcharge of 7.5% where Income exceed 1 Crore less marginal relief Plus education cess @ 3%]
2. 18% of book profit
[Surcharge of 7.5% where Income exceed 1 Crore less marginal relief Plus Education Cess @ 3%]
Incase of Foreign Company,
The Income Tax payable – shall be higher of following.:
1. Tax as per as Normal provision
[Surcharge of 2.5% where Income exceed 1 Crore less marginal relief Plus education cess @ 3%]
2. 18% of book profit
[Surcharge of 2.5% where Income exceed 1 Crore less marginal relief Plus education cess @ 3%]
Meaning of book profit:-
Book profit means Net profit for the year.
Add: Income tax paid or payable and any provision made thereof.
Here CDT, Surcharge, Education Cess, Higher Secondry Education Cess also constitute income tax and they will be added up.
Note :
1.Amount transferred to reserve will be added back
2. Interest paid on Wealth Tax shall not be added back, Similarly Wealth Tax paid shall also not added to the Net Profit
3.Income u/s 10, 10AA , 11 and 12 wont be liable to MAT.
4.Provision made for Unascertained liabilities shall be added back
5.Provision for Loss of subsidiary Co shall be added back
6.Sections 10A , 10B and 10 (38) wont be reduced while computing the Book Profit
7.The lower of Amount of Loss brought forward or unabsorbed depreciation as per books of Account shall be reduced from the net profits
8.STT & Penalty paid will not be added
What is MAT Credit ?
When a company pays tax under MAT, the tax credit earned by it shall be an amount which is the difference between the amount payable under MAT and the regular income tax. Regular tax in this case means the tax payable on the basis of normal computation of total income of the company. Conclusively, MAT Credit meansTax Paid under this Section (i.e. 115JB) Less Tax Payable under normal Provision.
Features of MAT
1. MAT Credit shall be allowed in the assessment year in which Tax Payable under normal provision of Income Tax is more than Tax payable under MAT
2.MAT Credit shall be allowed to be carried forward and claim set off for a period of 10 suceeding assesment years
3.Credit allowed will not bear any interest.
4.MAT credit to be allowed shall be Tax payable under Normal provision of Income Tax less Tax payable under MAT
5.MAT Credit available in the hands of Company & not to the LLP
Normally, a comapny is liable to pay tax on the income computed in accordance with the provisions of the income tax Act, but the profit and loss account of the company is prepared as per provisions of the Companies Act. There were large number of companies who had book profits as per their profit and loss account but were not paying any tax because income computed as per provisions of the income tax act was either nil or negative or insignificant. In such case, although the companies were showing book profits and declaring dividends to the shareholders, they were not paying any income tax. These companies are popularly known as Zero Tax companies. Inorder to bring such companies under the income tax act net, section 115JA was introduced w.e.f assessment year 1997-98.
Reason for Application:- Government of India found that several Indian company were showing high profits in P/L in Shareholder’s Meeting and at the same time distributing huge dividends, due to that they were’nt declaring any income as per Income tax and showing their taxable income as nil or very negligible. This is why Govt. was not able to generate revenue.
Reason for Variance in Profit:- The main reason for such variance in profit was mainly because of differences in the rate of depreciation under the two Acts.The Company’s Act provided a lower rate of depreciation as per co act and at the same time while computing providing higher rate of depreciation as per IT act.
How to calculate MAT( For Indian Co.) ???
Income tax shall be payable higher of following.:
1.Tax as per as
Normal provision
[Surcharge of 7.5% where Income exceed 1 Crore less marginal relief Plus education cess @ 3%]
2. 18% of book profit
[Surcharge of 7.5% where Income exceed 1 Crore less marginal relief Plus Education Cess @ 3%]
Incase of Foreign Company,
The Income Tax payable – shall be higher of following.:
1. Tax as per as Normal provision
[Surcharge of 2.5% where Income exceed 1 Crore less marginal relief Plus education cess @ 3%]
2. 18% of book profit
[Surcharge of 2.5% where Income exceed 1 Crore less marginal relief Plus education cess @ 3%]
Meaning of book profit:-
Book profit means Net profit for the year.
Add: Income tax paid or payable and any provision made thereof.
Here CDT, Surcharge, Education Cess, Higher Secondry Education Cess also constitute income tax and they will be added up.
Note :
1.Amount transferred to reserve will be added back
2. Interest paid on Wealth Tax shall not be added back, Similarly Wealth Tax paid shall also not added to the Net Profit
3.Income u/s 10, 10AA , 11 and 12 wont be liable to MAT.
4.Provision made for Unascertained liabilities shall be added back
5.Provision for Loss of subsidiary Co shall be added back
6.Sections 10A , 10B and 10 (38) wont be reduced while computing the Book Profit
7.The lower of Amount of Loss brought forward or unabsorbed depreciation as per books of Account shall be reduced from the net profits
8.STT & Penalty paid will not be added
What is MAT Credit ?
When a company pays tax under MAT, the tax credit earned by it shall be an amount which is the difference between the amount payable under MAT and the regular income tax. Regular tax in this case means the tax payable on the basis of normal computation of total income of the company. Conclusively, MAT Credit meansTax Paid under this Section (i.e. 115JB) Less Tax Payable under normal Provision.
Features of MAT
1. MAT Credit shall be allowed in the assessment year in which Tax Payable under normal provision of Income Tax is more than Tax payable under MAT
2.MAT Credit shall be allowed to be carried forward and claim set off for a period of 10 suceeding assesment years
3.Credit allowed will not bear any interest.
4.MAT credit to be allowed shall be Tax payable under Normal provision of Income Tax less Tax payable under MAT
5.MAT Credit available in the hands of Company & not to the LLP
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21 April 2012
Yes the expert is correct and has given you the detailed reply. I agree with him
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