MINIMUM ALTERNATE TAX U/S 115JB
Applicability of
MAT:-
MAT is applicable to All Companies including the Foreign
Companies.
Analysis of
provision of section 115JB:-
Where in case of a
company, the income tax payable on the Total Income as computed under the
income tax act in respect of any previous year is less than 18.5% of its BOOK
PROFIT, then such book profit shall be deemed to be the total income of the
assessee and the tax payable on such total income shall be the amount of income
tax at the rate of 18.5%. This
income tax, further has to be enhance by Surcharge (as applicable) and
education cess (@3%).
In
the simple words every company has to compute its income tax liability as per
two sets of provisions. Following are the two sets of provisions:
· Income tax computed as
per normal provisions of income tax act.
· · Income tax computed as per provision of
section 115JB of income tax act.
Meaning of Book Profit:-
Book Profit means the net
profit as shown in the Profit & Loss Account for the relevant previous year
as increased and decreased by some prescribed items.
In
simple words to compute book profit, we have to take the Profit as per Profit
& Loss account and make some prescribed additions and deletions to it.
Before
analyzing prescribed additions and deletions, we must understand the meaning of
“Profit & Loss Account”.
Meaning of Profit
& Loss Account for the purpose of book profit:-
Ø Assessee
being a company on which the proviso to section 129 of the Companies Act, 2013 is
applicable, shall for the purpose of section 115JB, prepare profit & loss
account for the relevant previous year in accordance with the provisions of Act
governing such company. (However, proviso to section 129 of the Companies Act, 2013
is applicable on Electricity, Insurance & Banking Companies, these company
is required to follows the provisions of governing laws for the purpose of
making profit & loss account.)
Ø Assessee
being a company other than a company refer above in (1), shall, for the purpose
of section 115JB, prepare the profit & loss account in accordance with
provision of Schedule-III to the Companies Act, 2013.
While
preparing the profit & loss account for the purpose of book profit and for
the purpose of laying accounts before the company at its AGM, following shall
be same:-
- The accounting polices
- The accounting standards
- The method & rates of depreciation
Analysis of Prescribed Additions and Deletions to the net profit as shown in the profit & loss account:-
· ADDITIONS TO NET PROFIT: Where
following amounts are debited to profit & loss account, the same have to be
added back in order to arrive at the Book Profit for the purpose of Section
115JB :-
a)
Amount of income tax paid or payable and
the provision thereof. ( the word “Income Tax” includes CDT u/s 115-O, Interest
under income tax act, Education Cess, Income tax and others)
b)
The amount carried to any reserve by
whatever name called. (like Reserve for expense, excess provision & etc.)
c)
The amount set aside for unascertained
liabilities i.e. provision for unascertained liability (like pro. for Bed
Debts, prov. for gratuity on ad-hoc basic etc.)
d)
Provision for loss of subsidiary companies.
e)
Amount of dividends paid or proposed.
f)
Amount of expense relatable to any income
to which section 10, 11, 12 (except sec. 10AA & 10(38)) apply. (Its mean
income u/s 10AA & long term capital gain exempt u/s 10(38) are subject to
MAT).
g)
Amount of depreciation (including
depreciation on account of revaluation of asset).
h)
Amount of deferred tax and provision
therefor.
i)
Provision for diminution in the value of
any assets. (Like pro. for diminution in the value of investment as per
AS-13/28).
j)
Amount standing in the revaluation reserve
relating to revalued asset on the retirement or disposal of such asset. (if not
credited to profit & loss account)
· DELETIONS FROM NET PROFIT: Where
following amounts are credited to profit & loss account, the same have to
be deducted in order to arrive at the Book Profit for the purpose of Section
115JB :-
a) Amount withdrawn from any reserves or
provisions and credited to profit & loss account provided that book profit
of relevant previous year should have been increased by such amount.
b) The amount of income to which any of the
provisions of section 10, 11 & 12 except 10AA & 10(38) apply.
c) Amount of depreciation debited to profit
& loss account, excluding the depreciation on account of revaluation of
assets. (i.e. actual depreciation not on part of revaluation has to be deleted
from net profit)
d) Amount withdrawn from revaluation reserve
and credited to profit & loss account to the extent of depreciation on
account of revaluation of asset.
e) Amount of loss brought forward or
unabsorbed depreciation, whichever is less as per the books of account. However
loss shall not include the depreciation. (if loss brought forward or unabsorbed
depreciation is nil then nothing shall be deducted.)
f)
Amount of Deferred Tax, is any such amount
is credited in the profit & loss account.
Analysis of amendment proposed by
Finance Bill-2015:-
Finance
Bill-2015 brings amendments in explanation-1 to sub-section (2) of section
115JB through clause-29 of the bill, as follows:-
o ADDITIONS TO NET PROFIT: Where
followings amount (form I to IX) debited to profit & loss account:-
a) the amount or amounts of expenditure
relatable to, income, being share of the assessee in the income of an
association of persons or body of individuals, on which no income-tax is
payable in accordance with the provisions of section 86.
In
simple words, assessee is not liable to pay MAT on share in the income of
AOP/BOI on which no income tax is payable u/s 86.
b) the amount or amounts of expenditure relatable
to income from capital gains arising on transactions in securities (other than
short term capital gains arising on transactions on which securities
transaction tax is not chargeable), accruing or arising to an assessee being a
Foreign Institutional Investor which has invested in such securities in
accordance with the regulations made under the Securities and Exchange Board of
India Act, 1992.
In
Simple words, now FII is not liable to pay MAT on capital gain arising on
transaction in securities, however, they are liable to pay MAT on short term
capital gain arising on transaction in securities on which STT is not
chargeable.
o DELETION FROM NET PROFIT:
a)
the amount of income, being the share of
the assessee in the income of an association of persons or body of individuals,
on which no income-tax is payable in accordance with the provisions of section
86, if any such amount is credited to the profit and loss account
b)
the amount of income from capital gains
arising on transactions in securities (other than short term capital gains
arising on transactions on which securities transaction tax is not chargeable),
accruing or arising to an assessee being a Foreign Institutional Investor which
has invested in such securities in accordance with the regulations made under
the Securities and Exchange Board of India Act, 1992, if any such amount is
credited to the profit and loss account.
MAT Credit U/S 115JC: –
When
any amount of tax is paid as MAT by an assessee being a company, then, credit
in respect of tax so paid shall be allowed to him in accordance with the
provision of section 115JAA.
· Allowable Tax Credit = Difference of MAT
paid and income tax payable under normal provision of Income tax Act, 1961.
(However,
no interest shall be paid on this Tax credit by the revenue.)
· Such tax credit shall be carry forward for 10
assessment year immediately succeeding the assessment year in which such credit
is become allowable.
· Tax credit shall be allowed set off in a
year when tax becomes payable on the total income in accordance with the normal
provisions of the Act.
· Set off shall be allowed to the extent of difference
between tax on the total income (under normal provision) and tax which would
have been payable u/s 115JB for that assessment year.
Example:
Suppose a company ABC books a profit of Rs 8 lac. After claiming all
applicable deductions exemptions and depreciation, the gross taxable income
comes out to be Rs. 4
lac.
Income tax
applicable in this case will be = 30% of Rs. 4 lac = Rs. 1,20,000
However,
applicable MAT = 18.5% of Rs. 8 lac = Rs. 1,48,000
So excess tax
payable will be ` 1,48,000
– ` 1,20,000 = ` 28,000
This excess Rs.28,000 can be carried
forward and set-off against regular tax payable for 10 assessment year immediately
succeeding the assessment year in which such credit becomes allowable..
Presumptive tax provisions vis-à-vis section 115JB
There
are special provisions enacted under the head "profits and gains of
business or profession" which provide for determination of income on a particular
basis. They are sections 44AD, 44AE, 44AF, 44B, 44BB, 44BBA and 44BBB. The
income derived from the sources covered by the respective provisions and
computed in accordance with such provisions shall be deemed to be the profits
and gains of such business chargeable to tax under the head “profits and gains
of business or profession” which is one of the heads of income mentioned in
section 14. Therefore, the income computed in accordance with the provisions of
sections 44AD, 44AE and 44AF, 44B, 44BB, 44BBA, and 44BBB is nevertheless
income computed in accordance with the provisions of the Act under the head
“income from business or profession”. Tax payable on such presumptive income
together with income under other heads shall be compared with the tax payable
under section 115JB and then the tax liability shall have to be determined.
Applicability of other provisions of
Income tax Act:-
Section 115JB(5) states that save as
otherwise provided in this section, all other provisions of this act shall
apply to every company, mentioned in this section.
Furnishing of Report:-
Every company to which this section applies
shall furnish a report from a Chartered Accountant in the Form-29B certifying
that the book profit has been computed in accordance with the provisions of the
section 115JB and such report shall be furnished along with the return of
income.
Future of Minimum Alternate Tax,
MAT, in India:
Due to the nature of MAT,
government has been facing continuous heat and several suggestions of
amendments to make section 115JB more inclusive as well as flexible. The Indian
government has recently announced the formation of a special committee to
examine ways to resolve disputes arising over MAT payment. At present the scope
of the committee is limited and seems to be focused on resolution of MAT
demands placed by the government on foreign institutional investors. This is
because over the past few months several foreign investors have received
notices with regards to payment of MAT. However, efforts by the government are
still on to make MAT payment more holistic and controlled.
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