In this post, let us understand in detail what Minimum alternate tax (MAT) is. We will cover the following:
What is the Minimum alternate Tax or MAT?
The introduction of the concept of Minimum alternative tax was to take the “zero tax” companies into the taxation bracket. It is payable under the Income-tax Act.
You may be thinking what are these zero tax paying companies?
So here it goes. In the past, a large number of companies showed profits on their profit and loss account and, at the same time, distributed huge dividends.
However, these companies did not pay any tax to the government as they reported either nil or negative income under the provisions of the Income Tax Act. So, these companies are popularly known as ‘zero-tax’ companies.
Basic Provisions of Minimum Alternative Tax
- The first step towards calculating tax liability is as per the Normal provisions of income tax act (tax rate 30% + 4% Edu cess + surcharge (if applicable)
- The second step towards calculating tax liability is as per the MAT provisions are given in Sec 115JB (18.5 % of Book Profits+ 4 % education cess + surcharge (if applicable)
According to Section 115JB, every taxpayer or company is eligible to pay income tax. It is applicable for all the public and private companies, including Indian and foreign companies working from India except those who are engaged in infrastructure and power.
How to calculate MAT?
MAT = 8.5 % of Book Profits + 4 % education cess + surcharge (if applicable)
Book Profits refers to the net profit as shown in the profit and loss account for the previous year as increased and decreased by the following items:
Additions to net profit (amount debited to profit and loss account)
- Income tax paid or payable, if calculated as per the normal provisions of the Income tax act.
- Paid or proposed dividends
- Provision for losses of subsidiary companies
- Depreciation amount
- Estimated loss on the transfer of a capital asset
- Provision of deferred tax
- Amount set aside as provisions for meeting liabilities
- Transfer made to any reserve
Deletions to Net profit (amount credited to profit and loss account)
- Withdrawal of amount from reserves or any provisions
- Withdrawal of amount from the revaluation reserve credited to profit and loss account to the extent of depreciation on account of revaluation of the asset.
- The loss amount brought forward or unabsorbed depreciation, whichever is least as per the books of accounts. Also, the loss shall not include depreciation.
- Amount of Deferred Tax
- Amount of depreciation debited to the Profit and Loss Account (excluding the depreciation on revaluation of Assets)
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