Mat credit & income tax provision

This query is : Resolved

Roshni Garach (Querist)
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17 August 2013 hello everyone
Can anyone describe the full fledge calculation of MAT Credit & Prov of Income Tax with the help of numerical examples.
Please give both examples when
MAT Tax > Income tax &
Income Tax > MAT Tax
And what should the amount trf to MAT Credit A/C under head Current Assets & Profit & Loss
A/C

Ankit

Ankit (Expert)
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17 August 2013 Dear Roshni,

The amount of tax payable is the higher of MAT or the tax as per the normal calculations.

if the MAT amount is greater, then the difference between MAT and Normal Tax is allowed as MAT Credit.

say normal tax is Rs 50 and MAT is 65, you will get a MAT credit of 15.

this will be allowed to be set off in future when again the company will be paying MAT.

in case you have doubts...feel free to ask

Roshni Garach

Roshni Garach (Querist)
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18 August 2013 thanks ankit for your quick response
but i m facing problem while passing journal As per your example the tax we will paid in A.Y is Rs 65/- so we have to make provision for Rs.65 in F.Y ending so what should be the Journal . Please rectify if i m wrong :-
MAT Credit A/C (Dr.)Rs 15/-Current Assets
Prov For Income Tax (Dr.)Rs 50/-P&L A/C
Income tax liability (Cr.)Rs.65/-Current Liab
From above Entry P&L A/C is affected by Normal tax amt i.e Rs 50/-

Is it correct????

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Ankit

Ankit (Expert)
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18 August 2013 You are welcome Roshni..
Yes you are right..the jv will be
Income tax dr(p/l)
Mat credit entitlement dr (curr assets)
To Prov fr Tax

eventually when it is recovered, it will get adjusted against the tax lability for that year

Hope I was clear...if you have aby doubts or have other queries...please feel free to ask