24th August 2011

Dear Forum Members

During the year ended 31st March 2010 a company has arrived at MAT liability. The following entries were passed in the books in respect of MAT liability and for payment of taxes

Debit P&L 12.00 lacs

Credit Provision for Taxation 12.00 lacs

(Being entry passed for provision for taxation for year ended 31.03.2010)

Debit Income Tax Paid (advance tax / self asst tax) 12.00 lacs

Credit Bank A/c 12.00 lacs

(Being balance income tax paid for year ended 31.03.2010)

(Note : The above liability and taxes paid has not been adjusted in the books as on date. The same continues to be shown in the books and would be adjusted upon receipt of assessment order from the department. It is a method followed by the company of adjusting the provision for taxation entries against taxes paid, only after receipt of assessment orders)

During the year ended 31st March 2011 the company has arrived at regular tax of about Rs.16.00 lacs. The MAT tax comes to about Rs.14.00 lacs. Hence the company can now adjust tax about Rs.2.00 lacs from previous year (31.03.2010) MAT paid.

The following entries are proposed to be passed in the books during 31.03.2011

Debit P&L 16.00 lacs

Credit Provision for Taxation 16.00 lacs

(Being entry passed for provision for taxation for year ended 31.03.2011)

Debit MAT Entitlement 12.00 lacs

Credit P&L 12.00 lacs

(Being entry passed for creating the MAT entitlement of Rs.12.00 lacs available to the company in respect of MAT paid during the year ended 31st March 2010)

Debit Provision for Taxation 2.00 lacs

Credit MAT Entitlement 2.00 lacs

(Being MAT credit of Rs.2.00 lacs availed during the year ended 31.03.2011 from the MAT paid during the year ended 31.03.2010 – Balance Rs.10.00 lacs being carry forward for future years adjustment)

Debit Income Tax Paid (advance tax / self asst tax) 14.00 lacs

Credit Bank A/c 14.00 lacs

(Being balance income tax paid for year ended 31.03.2011 after adjusting MAT credit of Rs.2.00 lacs available from year ended 31.03.2010)

Kindly advise whether the entries proposed to be passed during the year ended 31st March 2011 are correct.

with regards

R. Muralidharan

sir,

In year in which normal tax liability less than MAT liability then u have to pay MAT .Difference between normal tax and MAT is allow to be carry forward for period specified in act. If i asume that your normal tax liability as 31/3/10 is nil than you have to recognise 12 lakh rs(diff btwn normal tax and mat) As mat credit available to u . and u have to pass entry in year ended 31/3/10 itself. As per guidance note of icai it is called as Assets and should be shown under loan & advances in b/s. and credited to p/l a/c .However, there must be probablty that u will pay normal tax in future. review of the same should be made at each b/s date.

hence,As on 31/3/2010 following entry required :

MAt credit A/c dr. 12 lakh

To P& l A/c 12 lakh

(being amt. of credit of mat avilable for specified period)

As on 31/3/11

P& l a/c Dr. 16 lac

to income tax provision 16 lac

(being amt of provsion for Acc.year 2010-11)

In year of 2010-11 you can adujest diff btwn normal income tax and mat i.e 16-14: 2 lacs adujsted

Provision for tax a/c dr. 2 lac

to Mat credit a/c 2 lac

(being amt of mat credit set off which is diff btwn normal tax and mat which would have been payble )

provision of income tax a/c dr 14 lacs

to bank a/c 14 lacs

(being amt of tax paid after adjustin mat credit)

10 lacs being amt of mat credit carry forward and has to be review at each b/s date.in case there will be probability that company would not pay normal tax then same to the extent written back.