Accounting of MAT Credit Entitlement & Prior year MAT Credit

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NK1976

NK1976 (Querist)
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27 September 2022 Dear Sir,

Whether the MAT credit of prior year and MAT credit entitlement are required to be shown in the financial statements of the company? If Yes then how to present in the financial statement of the company. Which AS is applicable & from which year it is applicable to Companies. If we show in the financial statements of the company the reserve and surplus amount will increase. Please provide the Ind AS related to MAT credit of prior year and MAT credit entitlement.

Thanks & regards
N Kadam

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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06 July 2024 MAT (Minimum Alternate Tax) credit entitlement and MAT credit of prior years are significant items that should be appropriately disclosed in the financial statements of a company. Here’s how these are typically presented:

### Disclosure of MAT Credit Entitlement and MAT Credit of Prior Years

1. **MAT Credit Entitlement:**
- MAT credit entitlement arises when a company pays MAT but cannot use the credit immediately due to insufficient taxable income. This credit can be carried forward and utilized in subsequent years when there is sufficient taxable income to set it off against regular tax liability.
- In financial statements, MAT credit entitlement is generally disclosed under the head "Non-current Assets" or "Other Assets" if it meets the criteria of an asset under Ind AS (Indian Accounting Standards).

2. **MAT Credit of Prior Years:**
- MAT credit of prior years refers to the MAT credit that has been carried forward from previous years and is available for set-off against future tax liabilities.
- Similar to MAT credit entitlement, MAT credit of prior years is disclosed under "Non-current Assets" or "Other Assets" in the balance sheet.

### Accounting Standards Applicable

- **Ind AS 12 (Income Taxes):** Ind AS 12 deals with the accounting treatment for income taxes, including the recognition and measurement of current and deferred tax assets and liabilities. MAT credit entitlement and MAT credit of prior years are considered deferred tax assets under Ind AS 12.

### Presentation in Financial Statements

- **Balance Sheet:** MAT credit entitlement and MAT credit of prior years are presented as assets in the balance sheet under the appropriate categories of non-current assets or other assets.
- **Notes to Accounts:** The company should provide disclosures in the notes to the financial statements, detailing the nature and amount of MAT credit entitlement and MAT credit of prior years, including the amount eligible for carry forward and any restrictions on their utilization.

### Impact on Reserves and Surplus

- Including MAT credit entitlement and MAT credit of prior years in the financial statements will increase the total assets (specifically non-current assets or other assets) but typically does not directly affect reserves and surplus unless the credits are utilized or impaired.

### Compliance and Reporting

- Companies need to comply with Ind AS for the appropriate recognition, measurement, and disclosure of MAT credit entitlement and MAT credit of prior years.
- The disclosures should provide sufficient information to enable users of financial statements to understand the company's MAT credit position and its potential impact on future tax liabilities and cash flows.

### Conclusion

In summary, MAT credit entitlement and MAT credit of prior years are essential components of a company's financial statements, recognized as deferred tax assets under Ind AS 12. Proper disclosure ensures transparency and compliance with accounting standards, providing stakeholders with clear insights into the company's tax assets and potential future tax benefits. If in doubt or for specific advice tailored to your company's circumstances, consulting with a professional accountant or tax advisor is recommended.