Minimum Alternative Tax concept was introduced by the government just to make companies fall under tax bracket which are making high profits and declare dividends to their shareholders but not paying tax because of various reason whether it may be deductions, exemptions and so on. So, we can say that this applies to ZERO TAX Companies.
The main purpose behind it was not to evade tax but to use the flexibility of the tax structure prevailing in our country under the various government policies. This has happened in the past as companies were paying good dividends to the shareholders but they were not paying any tax to the government. So, the government took the initiative and introduced MAT( ie. MINIMUM ALTERNATIVE CONCEPT) so that so tax payer can avoid tax if it has substantial income.
As we all know, company makes its books of accounts considering the Companies Act and tax is paid on the computation of income as per Income Tax Act. There are various kinds of deductions and expenses which may be allowed as per companies act but they are disallowed as per Income tax and vice versa.
So, for this company has to calculate BOOK PROFIT for the calculation of tax. The calculation of Book Profit is framed under the guidance of CBDT and IND AS committee. They have provided certain list of items to be added back and deducted so as to calculate the book profit. And the companies have to pay minimum tax. As per the section 115JB of the Income Tax Act, 1961, “ when the income tax calculated as per income tax act is less than the 18.5% of the book profit, then such book profit shall be deemed to be the total income of the assessee and tax payable by the assessee shall be the 18.5% of the book profits.” In a nutshell, we can say that the company has to pay tax
• Income tax as per Income Tax act, or
• 18.5% of book profit
Whichever is HIGHER.
Salient Characteristics of MAT
• Advance Tax: As per the Income Tax Act, 1961, every assessee has to pay advance tax if the total tax liability is Rs. 10000 or more for the particular financial year. And the same applies to the companies liable to pay tax as per the provisions of the 115JB of the Act.
• MAT Reporting: The companies which are liable to pay tax under section 115JB of the Act and then the report is also being filed in form 29B along with income tax return.
• MAT Credit: Company pays MAT if it is higher than the regular tax. And, the excess amount in between the regular tax and Mat is considered as Credit. This credit is to be carried forward and can be set off in the financial year in which company will pay tax under the general provisions of the Income Tax Act. This MAT credit can be carried forward for 8 consecutive assessment years.
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