Minimum Alternative Tax (MAT)

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Vikas Gupta

Vikas Gupta (Querist)
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11 February 2010 What is Minimum Alternative Tax (MAT)?

BALASUBRAMANYA B N

BALASUBRAMANYA B N

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11 February 2010 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.

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BALASUBRAMANYA B N

BALASUBRAMANYA B N

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11 February 2010 ccording to this section, if the taxable income of a company computed under this Act, in respect of previous year 1996-97 and onwards is less than 30 % of its book profits, the total income of such company is chargeable to tax for the relevant previous year shall be deemed to an amount equal to 30 % of such book profits.

A new tax credit scheme is introduced by which MAT paid can be carried forward for set-off against regular tax payable during the subsequent five year period subject to certain conditions, as under:-

* 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 tax. Tegular tax in this case means the tax payable on the basis of normal computation of total income of the company.
* MAT credit will be allowed carry forward facility for a period of five assessment years immediately succeeding the assessment year in which MAT is paid. Unabsorbed MAT credit will be allowed to be accumulated subject to the five year carry forward limit.
* In the assessment year when regular tax becomes payable, the difference between the regular tax and the tax computed under MAT for that year will be set off against the MAT credit available.
* The credit allowed will not bear any interest.

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BALASUBRAMANYA B N

BALASUBRAMANYA B N

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11 February 2010 Minimum Alternate Tax (MAT) to be increased to 15 per cent of book profits from 10 per cent. The period allowed to carry forward the tax credit under MAT to be extended from seven years to ten years.

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Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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12 February 2010 Where in the case of a company,the income tax payable on the total income as computed under the Income tax Act,1961,is less than 10% ( 15% w.e.f 01/04/2010) of its book profit,such book profit shall be deemed to be the total income of the assessee company and the tax payable by the assessee company on such total income ( book profit) shall be the amount on the income tax at the rate of 10% (15% w.e.f 01/04/2010).
Thus in case of a company income tax payable shall be higher of the following two amounts:-
1) Tax on total income computed as per the normal provisions of the act.
2) 10%(15% w.e.f 01/04/2010) of the book profit.
Book profit means net profit as per profit and loss account prepared as per part 11 and 111 of schedule V1 of the Companies Act,1956 subject to certain permitted adjustments mentioned in section 115JB of the Income tax Act,1961.