Provision For Income Tax under MAT

This query is : Resolved

Rajat Aggarwal (Querist)
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06 September 2010 Hello everybody!!!

I have a query on MAT (Minimum Alternate Tax) Section 115JB on the The Income Tax Act, 1961.

We all know the provision of Section 115JB.

My query is:
1. Is the provision for MAT calculated as per Section 115JB also required to be made in the balance sheet for the relevant year or it is sufficient to keep IT records separately & have the MAT provision there only???????

2. MAT credit is carried forward & benefit of the same is claimed in the future years by setting off tax liability under normal provisions of the IT Act, 1961. How to present the same in the balance sheet & books of account?????

3. If the MAT Provision is to be made in the balance sheet for the relevant year, how to make the provision in books of account & entries to be passed???

Nischint Kumar Somani

Nischint Kumar Somani (Expert)
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07 September 2010 1. yes, as per the companies act and other relevant provisions it is mendatory to made provision for MAT..you can also show the mat tax credit available in the balance sheet

2. furthere at the time of setting off mat with income tax, you have to show the balance figure of mat tax credit available..

entry which is to be passed at the time of making the proviosn will be.

p&l account Dr

to provision for income tax/mat

Rajat Aggarwal

Rajat Aggarwal (Querist)
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07 September 2010 Dear Mr. Nishchint Kumar thanx for your reply but my query is still unresolved.

The entry which you have suggested above does not create any asset in the balance sheet under the head current assets. I have read somewhere that the credit of tax paid under MAT is shown under the heads current years & in later year same is adjusted against normal tax liability.

The entry above is simple tax provision which all of us know.

Give a deeper & practical thought!!!!!

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SANJAY TALATI

SANJAY TALATI (Expert)
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08 September 2010 Incidentally , I came across such a situation , where our company was under MAT for 2008-09.
Make a Current Year Tax provision with the Full amt. as per the normal provisions of the Income Tax Act and show the MAT credit Entitlment to the extent of the diff between the Tax liability as per the normal provisions and Tax liability as per MAT.

Rajat Aggarwal

Rajat Aggarwal (Querist)
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08 September 2010 Dear Mr. sanjay please clarify what if the tax liability is nil as per normal provision of income tax & tax is payable as per MAT.

How to create provision for IT as Per MAT??
How to create current asset in Balance Sheet?
What entries to be passed in books of accounts??

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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10 August 2024 When a company’s tax liability under the normal provisions of income tax is nil, but it is liable to pay Minimum Alternate Tax (MAT), the provision and accounting treatment for MAT needs to be handled as follows:

### 1. **Understanding MAT (Minimum Alternate Tax)**

MAT is applicable under Section 115JB of the Income Tax Act. It ensures that companies pay a minimum amount of tax, even if their tax liability under the normal provisions of the Income Tax Act is nil.

### 2. **Creating Provision for MAT**

#### Calculation and Provision:

1. **Calculate MAT Liability:**
MAT is calculated on the book profit as per Section 115JB. Ensure that the MAT calculation is accurate based on the company’s financial statements.

2. **Provision Entry:**
- **Profit & Loss Account:**
Record the MAT as an expense.
```plaintext
Debit: Provision for MAT (Expense) ₹[MAT Amount]
```

- **Balance Sheet:**
Show MAT provision under current liabilities.
```plaintext
Liabilities:
Provision for MAT ₹[MAT Amount]
```

### 3. **Creating Current Asset in Balance Sheet**

If MAT paid is more than the tax liability for the year (or if you have a MAT credit), you can create a current asset for MAT credit. This is because MAT paid in excess can be carried forward as MAT Credit to be set off against future tax liabilities.

#### Entries for MAT Credit:

1. **Record MAT Credit as a Current Asset:**
- **Balance Sheet:**
Show MAT credit as a current asset under the head "Other Current Assets."
```plaintext
Assets:
MAT Credit (Recoverable) ₹[MAT Credit Amount]
```

2. **Accounting Entries:**
When recording the MAT credit, you should make the following entry:
```plaintext
Debit: MAT Credit (Recoverable) ₹[MAT Credit Amount]
Credit: Provision for MAT ₹[MAT Amount]
```

### 4. **Example Entries and Treatment:**

Assume:
- MAT Liability: ₹1,00,000
- MAT Credit from previous years: ₹20,000

#### Provision for MAT:
- **Profit & Loss Account:**
```plaintext
Debit: Provision for MAT ₹1,00,000
```

- **Balance Sheet:**
```plaintext
Liabilities:
Provision for MAT ₹1,00,000
```

- **Current Asset (MAT Credit):**
```plaintext
Assets:
MAT Credit (Recoverable) ₹20,000
```

#### Entry for MAT Credit Adjustment:
When you recognize MAT Credit, you might adjust it against future tax liabilities.
```plaintext
Debit: MAT Credit (Recoverable) ₹20,000
Credit: MAT Credit Adjustment ₹20,000
```

### 5. **MAT Payment and Reconciliation:**

- **Payment of MAT:**
When you actually pay the MAT to the tax authorities, you would pass the following entry:
```plaintext
Debit: Bank/Cash ₹1,00,000
Credit: Provision for MAT ₹1,00,000
```

- **MAT Credit Adjustment:**
If you use the MAT credit in future years:
```plaintext
Debit: Income Tax Expenses ₹20,000
Credit: MAT Credit (Recoverable) ₹20,000
```

### Summary

1. **Create a provision for MAT in the Profit & Loss Account and Balance Sheet**.
2. **Record MAT Credit as a current asset if applicable**.
3. **Adjust MAT Credit against future tax liabilities**.

This ensures proper accounting for MAT and utilization of MAT credit, aligning with the tax laws and accounting standards.