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Minimum Alternate Tax (MAT)

Minimum Alternate Tax (MAT) is introduced under direct taxation to limit the amount of deductions / exemptions allowed during computation of tax payable by the companies. This was brought to ensure the companies pay a minimum amount of tax by zero tax paying companies.

Minimum Alternate Tax (MAT) under section 115JB

Section 115JB was introduced regarding Minimum Alternative Tax (MAT) from AY 2001-02 onwards. MAT is applicable on companies both domestic and foreign companies.

MAT under section 115JB is calculated as higher (A or B) of the following:

1. Tax liability as per Normal provisions of Income Tax Act
2. MAT is calculated on book profit x MAT tax rate. MAT tax rate is 15% for FY 2019-20 (AY 2020-21) Plus applicable surcharge and Higher education cess. Prior MAT rate was 18.5%

Book Profit under MAT

Book Profit under MAT is calculated after make adjustment to the Net Profit or Loss Account prepared in accordance with the Schedule VI of the Companies Act. MAT is book profit multiplied by MAT tax rate.

Steps to arrive at book profit:

1. Arrive Net Profit as per Statement of Profit and Loss Account of the company (before OCI – Other Comprehensive Income)
2. Adjust the book profits with exclusion and inclusion clause discussed below
3. Specific adjustments in the case of merger
4. Make further adjustment pertaining to OCI items

Adjustment of Net Profit to arrive at Book Profit

Net Profit as showing in the Profit and Loss Account prepared by the company in accordance of Schedule VI of the Companies Act

Positive Adjustment / Additions to net profit

Statement of Profit/Loss Account is to be increased by the following if debited to the profit and loss account:

1. Income Tax paid or payable and the provisions therefor
2. Reserves amount, by whatever name called
3. Amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities
4. Provision amount for losses of subsidiary companies
5. Dividends paid or proposed dividend amount
6. Expenditure relatable to certain incomes (if such incomes is not subject to MAT)
7. Depreciation amount from the AY 2007-08
8.  Deferred tax and the provisions therefor and the amount set aside as provision for diminution in the value of any asset
9. Amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset
10. Amount of Income / loss in the case of units referred to in section 47(xvii)

Negative Adjustment / Reduction of net profit

Net profit as shown in the profit and loss account should be reduced by the following adjustment to arrive at book profit:

1. Amount withdrawn from reserves or provision, if any such amount is credited to the Profit and Loss account
2. Income exempt from tax, if credited to profit and loss account, should be deducted
   1. Long-term capital gain exempt under section 10(38) for the AY 2005-06 and 2006-07
   1. Income exempt under other clauses of section 10
   1. Exempt income under section 11 and section 12
   1. Share of profit in AOP on which no income tax is payable
   1. Royalty in respect of patent chargeable to tax under section 115BBF
3. Depreciation (other than because of revaluation of assets) debited to the profit and loss account (applicable from AY 2007-08 and onwards)
4. Revaluation Reserve amount withdrawn and thereafter credited to the Profit and Loss Account to the extent it does not exceed the amount of depreciation on account of revaluation of assets
5. Aggregate amount of unabsorbed depreciation and loss brought forward if corporate insolvency resolution process (CIRP) has been started
6. Amount of loss (before depreciation) brought forward or unabsorbed depreciation, whichever is less, as per books of account
7. Eligible profit amount for deduction under sections 80HHC, 80HHE, 80HHF.
8. Profit of sick industrial unit.
9. Deferred tax amount, if any such amount is credited to the profit and loss account.
10. Income amount or loss in the case of units referred to in section 47(xvii).

MAT Credit

In case a company pays income tax under MAT provisions of section 115JB, then the company can claim credit of such tax paid in subsequent years.

MAT Tax credit allowable = Tax paid as per MAT provisions Less Income  Tax payable under normal provisions.

FORM 29B Certification by Chartered Accountants

Every company should furnish Form 29B to Income Tax department to which section 115JB applies. A report from Chartered Accountant should be obtained certifying the book profit has been computed in accordance with the provisions of section 115JB.

FAQ on Minimum Alternate Tax (MAT)

What is current tax rate under MAT under section 115JB

MAT rate is 15% of book profit is payable plus applicable surcharge and HEC (Health and education cess). Hence MAT Rate is 15% of book profit for FY 2019-20 (AY 2020-21) and FY 2020-21 (AY 2021-22).

Can MAT credit be carried forward

MAT credit can be carried forward to next 15 years.