Complete guide on MAT and AMT provisions under Income Tax Act, 1961

MAT

MAT vs AMT

Title
MAT
AMT
Full Form of MAT and AMT
MAT stands for Minimum Alternate Tax
AMT stands for Alternate Minimum Tax
Applicable
MAT is applicable for Company Assessee.
AMT is applicable to all assessee other than Company Assessee having Adjusted Total Income more than 20,00,000.
Section
Section-115JB of Income Tax Act, 1961
Section-115JC of Income Tax Act, 1961
Rate of Tax
   15% of Book Profit + Surcharge + Cess
  9% of Book Profit + Surcharge + Cess (if Company is located in IFSC and derives income solely in convertible foreign exchange)
  18.50% of Adjusted Total Income + Surcharge + Cess
  9% of Book Profit + Surcharge + Cess (if Company is located in IFSC and derives income solely in convertible foreign exchange)
Liability of Tax
Higher of Following:
1.       Tax as per normal provisions of Income Tax Act, 1961 + Surcharge + Cess
2.       15%/9% of Book Profit + Surcharge + Cess
Higher of Following:
1.       Tax as per normal provisions of Income Tax Act, 1961 + Surcharge + Cess
2.       18.50%/9% of Adjusted Total Income + Surcharge + Cess
The intention of introducing MAT and AMT was to bring into tax bracket to Corporate and Non-corporate assessee. Although they were earning handsome but were not paying tax or paying marginal tax by taking various benefits of depreciation, deductions and exemption under Income Tax Act, 1961. MAT provisions were announced in Finance Act, 1987, however it was withdrawn through Finance Act, 1990 and thereafter it was reintroduced in Finance Act, 1996.
   Now question may arise what is Book Profit and Adjusted Total Income and how it is being calculated. Lets see how it is being calculated,
  • ·         Calculation of “Book Profit”:-
   Explanation-1 of sub Section-2 of Section-115JB defines “Book Profit”, in accordance to that “Book Profit” means Net Profit as shown in Profit and Loss Account prepared in accordance to Schedule-III of the Companies Act, 2013 as increased or decreased by following adjustments:
Particular
Net Profit as shown in Profit and Loss Account prepared in accordance to Schedule-III of the Companies Act, 2013

Increase:-

   Provision for Income Tax, Income Tax Paid of Payable, Interest on Income Tax, Surcharge, Cess, Dividend Distribution Tax

   Amount of Dividend Paid, Payable or Proposed

   Amount transferred to any Reserve Account

   Losses of Subsidiary Company debited to Profit and Loss Account

   Provision made for Contingent Liability or Unascertained Liability

   Expenses for Income exempt under Section-10, Section-11 and Section-12

   Total Depreciation debited to Profit and Loss Account

   Provision for Impairment or diminution in the Value of Asset

Ex. Provision for Bad Debt, Losses in value of Investment as per AS-13, Impairment of Asset AS-28

   Deferred Tax debited to Profit and Loss Account

   Balance in Revaluation Reserve on retirement/disposal/sale of asset if not credited to Profit & Loss Account

   Expenses related to income from investment in AOP/BOI

   Expenses of Foreign Company related to income from Capital Gain in transfer of security, Interest, Royalty, Fees for Technical Services if tax on this income is below 15%

   Notional loss on exchange of shares of Special Purpose Vehicle (SPV) against units of Business Trust

   Expenses relating to income from royalty of patent which is taxable under Section-115BBF of Income Tax Act, 1961

Total

Decrease:-

   Amount withdrawn/used from any Reserve Account which was debited through Profit and Loss Account in earlier tax period

   Income which is exempted under Section-10, Section-11 and Section-12

   Deferred Tax credited to Profit and Loss Account

   Depreciation excluding depreciation on Revaluation of Asset debited to Profit and Loss Account

   Profit on Sick Industrial Unit

   Transfer from Revaluation Reserve Account upto the limit of Depreciation on Revaluation Reserve

   Lower of (a) Brought forward Business Loss or (b) Brought forward unabsorbed depreciation as per books of accounts

   Income from investment in AOP/BOI

   Income of Foreign Company from capital gain on transfer of securities, interest, royalty, fees for technical services if tax rate on above income is below 15%

   Notional gain on exchange of shares of Special Purpose Vehicle (SPV) against units of Business Trust

   Income from royalty of patent which is taxable under Section-115BBF of Income Tax Act, 1961

   Amount of unabsorbed depreciation and brought forward loss for companies against which corporate insolvency resolution process is going on under Section-7, Section-9 or Section-10 under Insolvency and Bankruptcy Code, 2016

   Profit related to business eligible to get deduction under Section-80HHC, Section-80HHE and Section-80HHF

Total

Book Profit

 

  • Calculation of “Adjusted Total Income”:-
  • Calculation of Adjusted Total Income is not cumbersome as compared to calculation of “Book Profit” in case of MAT. Section-115JC defines how to calculate Adjusted Total Income, which is as follows:
Particular
Net Total Income (NTI) as per the normal provisions of Income Tax Act, 1961

Increase:-

   Exemption claimed (if any) under Section-10AA

   Deduction claimed (if any) Chapter-VI-C (Deduction in respect of certain Income) except Section-80P

   Deduction claimed (if any) under Section-35AD including depreciation under Section-32 in respect of such businesses

Total

Decrease:-

   Depreciation allowable under Section-32 in respect of businesses specified under Section-35AD

Adjusted Total Income

 

  • MAT/AMT Credit:-
  • Income Tax Act, 1961 gives a right to the assessee to carry forward extra tax paid over and above the normal tax liability due to MAT/AMT. Such credit can be utilized to the extent of excess tax liability as per normal tax provision exceeds MAT/AMT.
  • The said MAT and AMT credit can be carried forward for the period of 15 years and 10 years respectively immediately succeeding the assessment year in which tax credit becomes allowable.
  • Provided that where the amount of international tax credit in respect of any tax paid in any country or specified territory outside India, under Section-90or Section-90A or Section-91, allowed against the tax payable under MAT/AMT exceeds the amount of such tax credit admissible against the tax payable by the assessee on its income in accordance with the other provisions of this Act, then, while computing the amount of credit under this sub-section, such excess amount shall be ignored.
  • For Example:-
Assessment Year Tax as per MAT/AMT provisions Tax as per normal provisions Tax Payable MAT/AMT Credit adjustment Actual Tax Paid MAT Credit Carried Forward
2011-12 9,50,000 7,50,000 9,50,000 0 9,50,000 2,00,000
2012-13 2,40,000 1,40,000 2,40,000 0 2,40,000 3,00,000
2013-14 1,50,000 2,00,000 2,00,000 50,000 1,50,000 2,50,000
2014-15 1,75,000 2,25,000 2,25,000 50,000 1,75,000 2,00,000
2015-16 4,50,000 7,50,000 7,50,000 2,00,000 4,50,000 0
2016-17 1,35,000 1,00,000 1,35,000 0 1,35,000 35,000

 

  • Exceptions to MAT:-
  • MAT provision shall not be applicable in the following case:
  1. The residential status of a company is a country or specified territory with which India entered into agreement under Section-90 or Section-90A and said company does not have any permanent establishment in India (Explanation-4 to Section-115JB).
  2. If in the above case India does not have any agreement with such country or specified territory than also MAT provisions shall not be applicable to said company if such company is not required to get registration under any companies law (Explanation-4 to Section-115JB).
  3. MAT provision is not applicable to a foreign company which has income from businesses as referred to in Section-44B, Section-44BB, Section-44BBA or Section-44BBB (Explanation-4A to Section-115JB).
  4. MAT provision is not applicable to a company has income accruing or arising from life insurance business as referred to in section 115B (Explanation-5A to Section-115JB).
  5. MAT provision is not applicable to a company liable to pay tax under Tonnage Taxation Scheme (Section-115V to Section-115VZC).

 

  • Report from Chartered Accountant:-
  • Each Company who is required to comply with the provisions of Section-115JB has to get a report and file it electronically in the Form-29B on or before the due date of filing the Return of Income from Chartered Accountant.
  • Each assessee who is required to comply with the provisions of Section-115JC has to get a report and file it electronically in the Form-29C on or before the due date of filing the Return of Income from Chartered Accountant.

 

  • New Scheme of Taxation and MAT Provisions for Domestic Companies:-
  • Special Income Tax rates for domestic companies from Assessment Year-2020-21 and Assessment Year-2021-22 are as follows:
Section Assessment Year-2020-21 Assessment Year-2021-22
Section-115BA 25% 25%
Section-115BAA 22% 22%
Section-115BAB 15% 15%

 

  • This new scheme of taxation is optional, domestic company can continue with existing tax rates.
  • According to new scheme of taxation companies which are opting to pay tax under Scetion-115BAA and Scetion-115BAB is exempted from the provisions of MAT. Though, no exemption is given to companies opting to pay tax under Section-115BA.
  • In addition, companies availing benefit of this new scheme shall not be eligible to get benefit under Section-32(1)(ii), Section-32AB, Section-33AB, Section-33ABA, Section-35(2AB), Section-35AD, Section-35CCC, Section-35CCD and deductions under chapter-VI-A (except Section-80JJAA).
  • Now, question arise that if a company avails benefit of Section-115BAA then they will loss entire MAT Credit outstanding as at the end of Assessment Year-2019-20.
  • To clarify this issue, they come up with Circular No.-29/2019 dated 2 October, 2019 according to the clarification there is no timeline within which the option under Section-115BAA has to be exercised. The option can be exercised after using the MAT credit against the income tax payable as per normal provisions. It means that the option of opting 115BAA benefit can be availed in Assessment Year-2021-22, Assessment Year-2022-23 or so on. But after availing the option, a Domestic Company cannot withdraw subsequently.

 

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