Calculation of Minimum Alternative Tax (MAT)

ZenIT || Calculation of Minimum Alternative Tax (MAT)

What is MAT:
As companies avoided taxes using all possible rebates, the MAT was introduced. MAT is a provision in the IT Act to limit the exemptions and rebates availed by companies. With MAT, companies have to necessarily pay a minimum amount of tax to the government.

MAT - Which Companies Must Pay:
As per section 115JB, every company has to pay MAT, if the tax (including surcharge and cess) on the total income, for the financial year is less than 15% of its book-profit + surcharge (SC) + health & education cess. As per Section 115JB, all companies must pay corporate tax at least equal to the higher of the following:
      a) Normal Liability: Tax computation on the taxable income by using tax rates applicable to the company. Tax computed using this method is termed normal tax liability.
      b) MAT: Tax computed @ 15% (plus surcharge and cess as applicable) on book profit. The tax computed using this method is called MAT.

What is the Book Profit for MAT
As per section 115JB(2) "book profit" means the net profit as shown in the profit and loss statement prepared by Schedule III to the Companies Act, 2013. Some costs/income is considered along with the profit and loss statement when calculating the book profit.

Some major costs are listed below:
      1. Income tax paid/payable and the provision for the same.
      2. Amounts moved to any reserves except those specified under Section 33AC.
      3. Provisions for unascertained liabilities.
      4. Provisions for losses incurred in subsidiary companies.
      5. Dividends paid/proposed.
      6. Expenditure related to incomes that are exempt under sections 10 [except section 10(38)], 11 and 12.
      7. The amount of expenditure related to, income, on which no income tax is payable is in line with provisions of section 86.

Major deductions to book profit:
      1. Amount withdrawn from reserves or provisions.
      2. Incomes that are exempt under sections 10, 11 and12 [except those under section10(38)].
      3. Depreciation debited to profit and loss statement (excluding the depreciation on revaluation of assets).
      4. Amount is withdrawn from revaluation reserve such that it does not exceed the depreciation on revaluation of assets.
Calculation of Minimum Alternative Tax (MAT)
Minimum Alternate Tax (MAT ) Tax liability as per the  MAT provisions is given in Sec 115JB( 18.5  % of Book Profits Plus 4 % education cess plus a surcharge if applicable). The tax rate is 15% with effect from AY 2020-21 (FY 2019-20)

1.) MAT is not applicable for Companies opting for new section 115baa (tax rate 22 %)
2.) MAT is applicable, for example when the book profit of the company as per Section 115JB is Rs199000. Thus, MAT at the rate of 15% of book profit will be Rs. 29850 plus cess and surcharge.

Example:
Book profit computed = Rs 199000
15 % of Book profit as computed = Rs 29850



Note:-  While uploading the MAT return and  the 18.5 rate (old rate) is coming on the income tax  website, then it may be the issue of the income tax website

Hope This Helps.

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