can any one help me to understant, under what circumstances we need to pay MAT and INCOME TAX
2 Replies
Dhawal Mohnot
(Practicing)
(449 Points)
Replied 18 August 2011
MAT is only applicable for companies.
Accounting of Income and expenses is different under companies act and Income Tax act.
1.When we have the book profit from our books which has been accounted as per the companies act we are required to add/less certain allowances and disallowances as per the income tax act and compute net total income.
2.also, we have to add/less certain specific items (the list of which you would find u/s 115JB of the income tax act) for the purpose of calculation book profit as per 115JB on which MAT has tobe computed.
Now the income tax wants a company to pay tax higher of the 2 calculations above.
So MAT is a computation each and every company has to make before filing their returns.
Incase of any clarifications/corrections please feel free to post.
Sanat kumar
(Chartered Accountant)
(265 Points)
Replied 18 August 2011
Hi Raghunandan
A comapny is liable to pay tax on the income computed in accordance with the income tax Act, but the P/L of the company is prepared as per Companies Act.
There were large number of companies who had book profits as per their P/L account but were not paying any tax because income computed as per provisions of the income tax act was either nil or negative . 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, MAT was introduced.
MAT is the minimum amount of tax which a company have to pay.
If Tax Payable under Income tax Act is more than Tax as per book profit, then the company sholud have to pay Tax as per income tax. otherwise MAT.
For better understanding please read section 115JA of Income Tax Act.
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