MINIMUM ALTERNATE TAX [SEC 115JB]
1. MAT applicability
According to Section 115JB(1) of Income Tax Act ,1961 in case of assessee being a company, if the income-tax payable on the total income computed under the Income-tax Act, 1961 is less than, 15% of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of 15%. Further Surcharge (if applicable) and Health and Education Cess shall be added.
2. Statement of Profit and Loss
Section 115JB(2) outlines requirement for an assessee being a company to prepare its Profit and Loss account according to either Schedule III of Companies Act 2013 or according to provisions of the act governing their company.
3. Book Profit Computation
As per Explanation 1 below Section 115JB(2), for computation of book profit, the profit shown in profit and loss account prepared u/s 115JB sub section (2), shall be increased and decreased by following stated in the table:
Clause No. |
Profit shall be increased by the following amounts: |
Clause No. |
Profit shall be reduced by the following amounts: |
(a) |
The amount of income-tax paid or payable, and the provision thereof It may be noted that Income tax includes Surcharge, HEC, Interest on Income Tax. |
(iih) |
The aggregate amount of unabsorbed depreciation and loss brought forward in case of a—
(A) company, and its subsidiary and the subsidiary of such subsidiary, where, the Tribunal, on an application moved by the Central Government under section 241 of the Companies Act, 2013 (18 of 2013) has suspended the Board of Directors of such company and has appointed new directors who are nominated by the Central Government under section 242 of the said Act
(B) company against whom an application for corporate insolvency resolution process has been admitted by the Adjudicating Authority under section 7 or section 9 or section 10 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) |
(b) |
The amounts carried to any reserves, by whatever name called, other than a reserve specified under section 33AC |
(i) |
Amount withdrawn from any reserve or provision, if any such amount is credited to the statement of profit and loss.
However, the amount withdrawn from reserves/provisions shall not be reduced from the book profit unless the book profit of that year has been increased by those reserves/ provisions. |
(c) |
The amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities |
(iii) |
the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account in case of a company other than the company referred to in clause (iih). |
(d) |
The amount by way of provision for losses of subsidiary companies |
(vii) |
the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company |
(e) |
The amount or amounts of dividends paid or proposed |
- |
- |
(f) |
Amount of expenditure relatable to any income to which section 10 [other than section 10(38)] or sections 11 or 12 apply. |
(ii) |
Amount of income to which section 10 [other than section 10(38)] or sections 11 or 12 apply. |
(fa) |
Amount of expenditure related to income, being share of assessee from AOP or BOI, on which no income-tax is payable in accordance with the provisions of section 86 |
(iic) |
Amount of income, being share of assessee from AOP or BOI, on which no income-tax is payable in accordance with the provisions of section 86 |
(fb) |
Amount of expenditure relatable to income accruing or arising to an assessee, being a foreign company, from—
(A) the capital gains arising on transactions in securities; or
(B) the interest, dividend, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII [Section 115A].
if the income-tax payable thereon in accordance with the provisions of this Act, other than the provisions of this Chapter, is at a rate less than 15% |
(iid) |
Amount of income accruing or arising to an assessee, being a foreign company, from—
(A) the capital gains arising on transactions in securities; or
(B) the interest, dividend, royalty or fees for technical services chargeable to tax at the rate or rates specified in Chapter XII [Section 115A].
if the income-tax payable thereon in accordance with the provisions of this Act, other than the provisions of this Chapter, is at a rate less than 15% |
(fc) |
- the amount representing notional loss on transfer of a capital asset, being share of a special purpose vehicle, to a business trust in exchange of units allotted by the trust or,
- the amount representing notional loss resulting from any change in carrying amount of said units or,
- the amount of loss on transfer of units |
(iie) |
- the amount representing notional gain on transfer of a capital asset, being share of a special purpose vehicle, to a business trust in exchange of units allotted by the trust or,
- the amount representing notional gain resulting from any change in carrying amount of said units or,
- the amount of gain on transfer of units |
(fd) |
The amount(s) of expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF |
(iig) |
The amount of income by way of royalty in respect of patent chargeable to tax under section 115BBF |
(g) |
The amount of depreciation |
(iia) |
The amount of depreciation debited to the statement of profit and loss (excluding the depreciation on account of revaluation of assets) |
(h) |
Deferred tax and the provision therefor |
(viii) |
The amount of deferred tax, if any such amount is credited to the statement of profit and loss. |
(i) |
Amounts set aside as provision for diminution in the value of any asset |
(iib) |
The amount withdrawn from revaluation reserve and credited to the statement of profit and loss, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in clause (iia) |
(j) |
The amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset. |
- |
- |
(k) |
Amount of Gain when units of business trust (received in exchange of shares of SPV) are actually transferred. The amount of gain to be computed on the basis of
- cost of shares exchanged (When shares are carried at cost)
- carrying amount of shares at the time of exchange (when the shares are carried at a value other than the cost) |
(iif) |
Amount of loss when units of business trust (received in exchange of shares of SPV) are actually transferred. The amount of loss to be computed on the basis of
- cost of shares exchanged (When shares are carried at cost)
- carrying amount of shares at the time of exchange (when the shares are carried at a value other than the cost) |
Points to be noted:
1. Brought forward losses and unabsorbed depreciation referred in Clause (iih) & (iii) above should be as per Companies Act, 2013.
2. Non applicability of MAT: The provisions of MAT shall not apply to :
(i) any income accruing or arising to a company from life insurance business referred to in section 115B;
(ii) a person who has exercised the option referred to under section 115BAA or section 115BAB.
3. Non applicability of MAT to certain Foreign Companies [Explanation 4 to Section 115JB]:
- If India has a DTAA u/s 90(1)/90A(1) with the country of residence of Foreign Company, and such foreign company is not having any Permanent Establishment in India.
- If India does not have any DTAA u/s 90(1)/90A(1) with the country of residence of Foreign Company, and such company is not required to seek registration under any law for the time being in force relating to companies.
4. It has been clarified that the provisions of this section shall not be applicable and shall be deemed never to have been applicable to an assessee, being a foreign company, where its total income comprises solely of profits and gains from business referred to in section 44B or section 44BB or section 44BBA or section 44BBB and such income has been offered to tax at the rates specified in those sections. [Explanation 4A to Section 115JB]
5. Concessional rate of MAT [Section 115JB(7)]:
When the assessee is a unit located in an International Financial Services Centre and derives its income solely in convertible foreign exchange, the MAT shall be applicable at a rate of 9% instead of 15%.
4. Minimum Alternate Tax Credit [Section 115JAA]
1. According to section 115JAA, if in any assessment year tax is paid under section 115JB(1), the excess of tax so paid over and above the tax payable under the other provisions of the Income-tax Act, 1961, will be allowed as tax credit in the subsequent years.
In simple words MAT credit means difference of tax payable u/s 115JB(1) and tax payable under other provisions of income tax in an assessment year.
2. MAT credit can be carried forward for 15 assessment years succeeding the assessment year in which credit became allowable.
3. MAT credit is allowed to be set off against tax payable under provisions of the act other than Sec 115JB, and only to the extent of excess of such tax payable over tax payable on book profits (u/s 115JB) in that year.
4. In case of conversion of a private company or unlisted public company into an LLP, MAT credit would not be allowed to successor LLP.
5. A company opting for section 115BAA, cannot setoff MAT credit available to it from the year in which exercise such option.
5. Adjustment in Tax Payable calculated u/s 115JB on account of Advance Pricing Agreement and Secondary Adjustment [Section 115JB(2D)]:
When there is an increase in Book Profit of the previous year due to inclusion of past year(s) income in books of account on account of
AO shall on application made by assessee, recompute the book profit for past year(s) and tax payable u/s 115JB for the previous year in the manner as may be prescribed.
In such case provisions of Section 154 shall apply.
Rule 10RB(1): For purpose of Section 115JB(2D), the tax payable u/s 115JB(1) shall be reduced by the following amount, namely:
(A-B) - (D-C) where,
A = Tax payable u/s 115JB(1) on book profit of previous year including the past income.
B = Tax payable u/s 115JB(1) on book profit of previous year excluding the past income.
C = Aggregate of tax payable by the assessee company under section 115JB(1) on the book profit of those past year or years to which the past income belongs.
D = Aggregate of tax payable by the assessee company under section 115JB(1) on the book profit of past year or years, referred to in item C, after increasing the book profit with the relevant past income of such year or years.
For the purpose of sub rule (1), Past income means the amount of income of past year or years included in the book profit of the previous year on account of an APA entered into by the assessee under section 92CC or on account of secondary adjustment required to be made under section 92CE.
CA Pranay Jain is a young and aspiring Chartered Accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.
He is also socially active on LinkedIn at linkedin.com/in/capranayjain |
CA Pranay Jain |
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