Setting-off business loss in pvt ltd.:mat applicable?
This query is : Resolved
14 July 2012
Hello,
A Pvt Ltd. which has about Rs.75000 of business loss carried forward from the past 2 years made a profit of about Rs.35000 in the year ended 31/3/12. Now, can this profit be set-off against this loss? What about MAT provisions? Will the Company have to pay any tax(MAT) even though the profit this year is less than the loss carried fwd till date?
Hello,
A Pvt Ltd. which has about Rs.75000 of business loss carried forward from the past 2 years made a profit of about Rs.35000 in the year ended 31/3/12. Now, can this profit be set-off against this loss? What about MAT provisions? Will the Company have to pay any tax(MAT) even though the profit this year is less than the loss carried fwd till date?
14 July 2012
Yes the Income tax loss of Rs. 75000 can be set off against the business profit of the current year.If book profit is greater then tax payable under IT then you have to pay MAT.While computing book profit the amount of loss b/f or unabsorbed depreciation whichever is less as per books of account can be reduced from the net profit.
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14 July 2012
I'm slightly confused. The Company in question does not have any fixed asset. Hence the question of Depreciation does not arise.
Business Loss(total of last 2 years): Rs.75000
Current Year's Business Income: Rs.40000
Now please tell me if any tax is payable under MAT.
Business Loss(total of last 2 years): Rs.75000
Current Year's Business Income: Rs.40000
Now please tell me if any tax is payable under MAT.
14 July 2012
please tell me Rs.75000 loss is as per IT or books??
14 July 2012
Rs.75000 is the Income Tax Loss(total of the last 2 years) shown in the ITR-6
21 July 2012
Even though the profit of current year is adjusted from the b/f loss you have to pay MAT on book profit.
28 July 2012
I'm slightly confused. The Company in question does not have any fixed asset. Hence the question of Depreciation does not arise.
Business Loss(total of last 2 years): Rs.75000
Current Year's Business Income: Rs.40000
Now please tell me if any tax is payable under MAT.
I'm slightly confused. The Company in question does not have any fixed asset. Hence the question of Depreciation does not arise.
Business Loss(total of last 2 years): Rs.75000
Current Year's Business Income: Rs.40000
Now please tell me if any tax is payable under MAT.
25 July 2025
Here’s a clear explanation to resolve your confusion about **set-off of business loss in a Pvt. Ltd. company** and **Minimum Alternate Tax (MAT) implications**:
---
### 1. **Set-off of Business Loss**
* The company has carried forward **business loss of Rs. 75,000** (as per Income Tax return, ITR-6) from earlier years.
* The current year’s **business profit is Rs. 40,000**.
* **Income tax-wise**, the company **can set off the carried forward loss against current year’s profit**.
* So, **taxable income as per Income Tax Act will be Nil** or adjusted accordingly.
---
### 2. **Minimum Alternate Tax (MAT) Applicability**
* **MAT is computed on “Book Profit”**, i.e., profit as per Companies Act (financial statements), **not on Income Tax profit**.
* MAT is applicable if the book profit is positive and the tax computed on book profit exceeds normal tax liability.
* **Even if income tax profit is NIL due to set-off of losses, if the book profit is positive, MAT may be payable.**
---
### 3. **How to compute Book Profit for MAT?**
* Book profit starts with **profit before tax as per financial statements** (Profit & Loss account).
* From book profit, you can deduct:
* Losses brought forward or unabsorbed depreciation **to the extent they are actually debited in the books** (not just IT losses).
* Since your company has **no fixed assets, depreciation does not arise**.
* The question is whether the **loss of Rs. 75,000 is reflected in books** or only in Income Tax records.
---
### 4. **Your scenario**
* If the company’s **financial statements show a profit of Rs. 40,000**, and **no prior year loss is adjusted in books**, then:
* Book profit = Rs. 40,000
* MAT will be computed on Rs. 40,000.
* You will have to pay MAT (if applicable, at the prevailing rate).
* If the loss of Rs. 75,000 is also accounted for in the books (i.e., reducing the profit), and net book profit is zero or negative, **no MAT liability arises**.
---
### 5. **Summary**
| Condition | MAT Applicability |
| ------------------------------------------------- | ---------------------- |
| Book profit > 0 (even if IT loss carried forward) | Pay MAT on book profit |
| Book profit ≤ 0 | No MAT payable |
---
### What you should check:
* **Are the carried forward losses shown in the company’s books (P\&L account)?**
* **What is the book profit before tax?**
If you want, I can help draft a checklist or a note explaining this to your accountant or assist with MAT computation examples. Would that help?
---
### 1. **Set-off of Business Loss**
* The company has carried forward **business loss of Rs. 75,000** (as per Income Tax return, ITR-6) from earlier years.
* The current year’s **business profit is Rs. 40,000**.
* **Income tax-wise**, the company **can set off the carried forward loss against current year’s profit**.
* So, **taxable income as per Income Tax Act will be Nil** or adjusted accordingly.
---
### 2. **Minimum Alternate Tax (MAT) Applicability**
* **MAT is computed on “Book Profit”**, i.e., profit as per Companies Act (financial statements), **not on Income Tax profit**.
* MAT is applicable if the book profit is positive and the tax computed on book profit exceeds normal tax liability.
* **Even if income tax profit is NIL due to set-off of losses, if the book profit is positive, MAT may be payable.**
---
### 3. **How to compute Book Profit for MAT?**
* Book profit starts with **profit before tax as per financial statements** (Profit & Loss account).
* From book profit, you can deduct:
* Losses brought forward or unabsorbed depreciation **to the extent they are actually debited in the books** (not just IT losses).
* Since your company has **no fixed assets, depreciation does not arise**.
* The question is whether the **loss of Rs. 75,000 is reflected in books** or only in Income Tax records.
---
### 4. **Your scenario**
* If the company’s **financial statements show a profit of Rs. 40,000**, and **no prior year loss is adjusted in books**, then:
* Book profit = Rs. 40,000
* MAT will be computed on Rs. 40,000.
* You will have to pay MAT (if applicable, at the prevailing rate).
* If the loss of Rs. 75,000 is also accounted for in the books (i.e., reducing the profit), and net book profit is zero or negative, **no MAT liability arises**.
---
### 5. **Summary**
| Condition | MAT Applicability |
| ------------------------------------------------- | ---------------------- |
| Book profit > 0 (even if IT loss carried forward) | Pay MAT on book profit |
| Book profit ≤ 0 | No MAT payable |
---
### What you should check:
* **Are the carried forward losses shown in the company’s books (P\&L account)?**
* **What is the book profit before tax?**
If you want, I can help draft a checklist or a note explaining this to your accountant or assist with MAT computation examples. Would that help?
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