Minimum Alternate Tax (MAT) in India

The concept of MAT was introduced for companies. At times it may happen that a taxpayer, being a company, may have generated income during the year, but by taking the advantage of various provisions of Income-tax Law (like exemptions, deductions, depreciation, etc.), it may have reduced its tax liability or may not have paid any tax at all.
Due to an increase in the number of zero-tax-paying companies, MAT was introduced by the Finance Act of 1987, which was effective from the assessment year 1988-89. Later on, it was withdrawn by the Finance Act, 1990 and then reintroduced by the Finance (No. 2) Act, 1996, wef1-4-1997.

Objective:

The objective of introduction of MAT is to bring into the tax net “zero tax companies” which in spite of having the earned substantial book profits and having paid dividends, do not pay any tax due to various the tax audit in India concessions and incentives provided under the Income-tax Law.

Since the introduction of MAT, several changes have been introduced in the provisions of MAT and today it is levied on companies as per the provisions of section 115JB.

Basic provisions of MAT:

As per the concept of MAT, the tax liability of a company will be higher of the following:

• The tax liability of the company is computed as per the normal provisions of the Income-tax Law, i.e., tax is computed on the taxable income of the company by applying the tax rate applicable to the company.
• The tax computed by applying 15% (plus surcharge and cess as applicable) on book profit is called MAT.

Note: MAT is levied at the rate of 9% (plus surcharge and cess as applicable) in case of a company, being a unit of an International Financial Services Centre and deriving its income solely in convertible foreign exchange.

Applicability and non-applicability of MAT As per section 115JB :

Every taxpayer, being a company, is liable to pay MAT if the Income-tax (including surcharge and cess) payable on the total income, computed as per the provisions of the Income-tax Act in respect of any year, is less than 15% of its book profit + surcharge (SC) + health & education cess.

Non-applicability

The provisions of MAT are not applicable to:

1. a) The domestic companies which have opted for tax regimes under Section 115BAA or Section 115BAB;
2. b) Any income accruing or arising to a company from the life insurance business referred to in Section 115B;
3. c) Shipping company, the income of which is subject to tonnage taxation

Further, as per Explanation 4 to section 115JB as amended by Finance Act, 2016 with retrospective effect from 1/4/2001, it is clarified that the MAT provisions shall not be applicable and shall be deemed never to have been applicable to an assessee, being a foreign company, if—

• the assessee is a resident of a country or a specified territory with which India has an agreement referred to in subsection (1) of section 90, or the Central Government has adopted any agreement under sub-section (1) of section 90A and the assessee does not have a permanent establishment in India in accordance with the provisions of such agreement; or
• the assessee is a resident of a country with which India does not have an agreement of the nature referred to in clause (I), and the assessee is not required to seek registration under any law for the time being in force relating to companies.
• Further, as per Explanation 4A to section 115JB as inserted by Finance Act, 2018, MAT provisions shall not be applicable to a foreign company whose total income tax comprises profits and gains arising from business referred to in sections 44AB, 44BB, 44BBA, or 44BBB and such income has been offered to tax at the rates specified in those sections.

Book Profit

For the purposes of section 115JB, it means net profit as shown in the statement of profit and loss prepared in accordance with Schedule III to the Companies Act, 2013, as increased and decreased by certain items prescribed in this regard. The items to be increased and decreased are as follows.

ITEMS TO BE INCREASED – If they are debited to the Profit and loss account

• Income-tax paid/payable and the provision thereof (Amounts carried to any reserves by whatever name called (Other than reserve specified under Section 33AC)
• Provisions for unascertained liabilities. Provisions for losses of subsidiary companies
• Dividends paid/proposed
• Expenditures related to incomes are exempt under Section 10 [other than Section 10(38)], section 11, and Section 12
• The amount or amounts of expenditure relatable to income, being shared of the taxpayer in the income of an association of persons or body of individuals, on which no income tax is payable in accordance with the XXXXX [A s amended by Financ e A c t, 2021] provisions of section 86
• The amount or amounts of expenditure relatable to income accruing or arising to a taxpayer 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 if the income-tax payable on above income is less than the rate of MAT
• The amount representing notional loss on the transfer of a capital asset, being shared or a special purpose vehicle to a business trust in exchange for units allotted by that trust referred to in clause (xvii) of section 47 or the amount representing notional loss resulting from any change in carrying amount of said units or the amount of loss on the transfer of units referred to in clause (xvii) of section 47
• Expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF
• Amount of depreciation debited to P & L A/c
• Deferred tax and the provision thereof
• Provision for diminution in the value of any asset
• The amount standing in revaluation reserve relating to the revalued asset on the retirement or disposal of such an asset if not credited to the statement of profit and loss
• The amount of gain on the transfer of units referred to in clause (xvii) of section 47 is computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through the statement of profit and loss as the case may be;

ITEMS TO BE DEDUCTED – If they are credited to the profit and loss account

• The amount is withdrawn from any reserve or provision if credited to the P&L account
• Incomes which are exempt under Section 10 [other than Section 10(38)], section 11 and Section 12
• Amount of depreciation debited to the statement of profit and loss (excluding the depreciation on revaluation of assets)
• The amount withdrawn from the revaluation reserve and credited to the statement of profit and loss to the extent it does not exceed the amount of depreciation on the revaluation of assets
• The amount of income, being the share of the taxpayer 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 statement of profit and loss
• The amount of income accruing or arising to a taxpayer 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, if such income is credited to the statement of profit and loss and the income tax payable on the above income is less than the rate of MAT.

• The amount (if any, credited to the statement of profit and loss) representing (a) notional gain on transfer of a capital asset, being a share of a special purpose vehicle to a business trust in exchange for units allotted by that trust referred to in clause (xvii) of section 47; or

(b) notional gain resulting from any change in the carrying amount of said units or

(c) gain on transfer of units referred to in clause (xvii) of section 47, The amount representing the notional gain on transfer of units referred to in clause (xvii) of section 47 computed by taking into account the cost of the shares exchanged with units referred to in the said clause or the carrying amount of the shares at the time of exchange where such shares are carried at a value other than the cost through the statement of profit and loss, as the case may be;

• Income by way of royalty in respect of patent chargeable to tax under section 115BBF
• 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 has suspended the Board of Directors of such company and has appointed new directors who the Central Government nominates under Section 242 of the said Act; A company against whom the Adjudicating Authority has admitted an application for corporate insolvency resolution process under Section 7 or Section 9 or Section 10 of the Insolvency and Bankruptcy Code, 2016
• Amount of brought forward loss or unabsorbed depreciation, whichever is less as per books of account (in case of a company other than the company undergoing insolvency proceedings)
• Profits of a sick industrial company till its net worth becomes zero/positive.
• Deferred tax, if credited to the statement of profit and loss

MAT CREDIT

A company has to pay higher taxes or liability as per MAT provisions. If in any year the company pays liability as per MAT, then it is entitled to claim credit of MAT paid over and above the normal tax liability in the subsequent year(s).

 Adjustment of carried forward MAT credit

As discussed earlier, a company is entitled to claim MAT credit, i.e. excess of MAT paid over the normal tax liability. The company can utilise the credit of MAT in the subsequent year(s). The credit can be adjusted in the year in which the liability of the company as per the normal provisions is more than the MAT liability. The set-off with respect to the brought-forward MAT credit shall be allowed in the subsequent year(s) to the extent of the difference between the tax on its total income as per the normal provisions and as per the MAT provisions.

Period for which MAT credit can be carried forward

The company can carry forward the MAT credit for adjustment in subsequent years (s); however, it can be carried forward only for a period of 15 years, after which it will lapse. In other words, if the company cannot utilise the MAT credit within 15 years (immediately succeeding the assessment year in which such credit was generated), then such credit will lapse. No interest is paid to the taxpayer with respect to such credit.

Report from chartered accountant

Every company to whom the provisions of section 115JB apply is required to obtain a report from a chartered accountant in Form No. 29B certifying that the book profit has been computed in accordance with the provisions of section 115JB. The report should be obtained before the specified date referred to in Section 44AB. The audit report in Form No. 29B shall be filed electronically.

Alternate Minimum Tax

The provisions relating to MAT are applicable to non-corporate taxpayers in a modified pattern in the form of Alternate Minimum Tax, i.e., AMT. Thus, it can be said that MAT applies to companies, and AMT applies to a person other than a company

Basic provisions relating to the applicability of the AMT

The provisions of AMT will apply to every non-corporate taxpayer who has claimed

• deduction under section 80H to 80RRB (except 80P),
• deduction under section 35AD and
• deduction under section 10AA.

Thus, provisions of AMT are not applicable to taxes on corporate income for those who have not claimed any deduction under the above-discussed sections.

However, the following points should be kept in mind.

The provisions of AMT shall apply to an individual or a Hindu undivided family or an association of persons or a body of individuals (whether incorporated or not) or an artificial juridical person only if the adjusted total income (discussed later) of such person exceeds Rs. 20,00,000. (Section 115JEE)

The provisions of AMT shall apply to every other person (i.e., other than an individual, a HUF, an AOP/BOI, or an artificial juridical person) irrespective of its income.

Further, the provisions of AMT are not applicable to a person who has exercised the concessional tax regime available under section 115BAC or section 11BAD.

Rate of AMT

• In the case of non-corporate taxpayers, AMT is levied @ 18.5% of adjusted total income.
• Surcharge and cess, as applicable, will also be levied.
• However, AMT is levied @ 9% in case of a non-corporate assessee being a unit located in International Financial Services Centre and deriving its income solely in convertible foreign exchange. Surcharge and cess as applicable will also be levied.

Adjusted Total Income:

Tax Liability

As per the concept of AMT, the tax liability of a non-corporate taxpayer to whom the provisions of AMT apply will be higher of the following:

• Tax liability is computed as per the normal provisions of the Income-tax Law, i.e., tax computed on the taxable income of the taxpayer at the tax rate applicable to him. Tax computed in the above manner can be termed as normal tax liability.
• Tax computed @ 18.5% (plus surcharge and cess as applicable) on adjusted total income. The tax computed by applying 18.5% (plus surcharge and cess as applicable) on adjusted total income is called AMT.

Note: AMT is levied @ 9% in case of a non-corporate assessee being a unit located in the International Financial Services Centre and deriving its income solely in convertible foreign exchange. Surcharge and cess, as applicable, will also be levied. (Applicable from Assessment Year 2019-20)

AMT credit

A non-corporate taxpayer to whom the provisions of AMT apply has to pay higher of normal tax liability or liability as per the provisions of AMT. If, in any year, the taxpayer pays liability as per AMT, then he is entitled to claim credit in the subsequent year(s) of AMT paid above the normal tax liability.

Adjustment of carried forward AMT credit

A non-corporate taxpayer to whom the provisions of AMT apply is entitled to claim AMT credit of excess AMT paid over the normal tax liability. The taxpayer can utilise the credit of AMT in the subsequent year(s). The credit can be adjusted in the year in which the liability of the taxpayer as per the normal provisions is more than the AMT liability. The set-off with respect to the brought forward AMT credit shall be allowed in the subsequent year(s) to the extent of the difference between the tax on his total income as per the normal provisions and the liability as per the AMT provisions.

 Period for which AMT credit can be carried forward

A non-corporate taxpayer (to whom the provisions of AMT apply) can carry forward the AMT credit for adjustment in subsequent years (s). However, the AMT credit can be carried forward only for a period of 15 years, after which it will lapse

No interest is paid to the taxpayer with respect to such credit.

Report from Chartered Accountant

Every non-corporate taxpayer to whom the provisions of AMT apply is required to obtain a report from a chartered accountant in Form No. 29C before the date referred to in Section 44AB.