Mat Tax Eligibility Rates and Applicability
Mat Tax is paid under the Income Tax Act. Mat Tax was introduced for those companies that earn huge profits and pay the dividend to its shareholders but do not pay any minimum tax and claiming deductions and exemptions allowed under the IT Act. By introduced Mat Tax, the companies have to pay a fixed percentage tax at the profit as Mat Tax.
The main objective for introducing Minimum Alternate Tax is to facilitate taxation of "zero tax companies", by making such companies liable to pay a minimum tax. This provision of tax is applicable to all companies, including foreign companies that have established their presence in India.
As per the provision of Mat Tax, the tax liability of a company will be higher of the following two provisions:
- Tax liability is calculated as per the normal provisions of the Income Tax Act @30% plus education cess and surcharge, as applicable; or
- Tax is calculated as per the Mat Tax provision on book profit i.e. 18.5% tax rate plus education cess and surcharge, as applicable.
Mat Tax Applicability
Minimum Alternate Tax is only applicable to companies and not to individuals, HUFs, partnership firms, LLPs, societies, etc. Rules pertaining to Sec 115JA is applicable to foreign companies that generate profits through their running business activities in India.
How to calculate the Mat Tax?
Minimum Alternate Tax is equal to 18.5% (15% from AY 2020-21) of Book profits (Plus Surcharge and cess as applicable). Book profit means the net profit as shown in the profit & loss account for the year as addition and deletion by the following items:
Additions to the Net Profit (If amount debited to the Profit and Loss Account):
1. Income Tax paid or payable calculated as per normal provisions of the income tax act (if any).
2. Amount transfer made to any reserve
3. Proposed dividend or paid
4. Provision made for loss of subsidiary companies
5. Depreciation charged including depreciation on account of revaluation of assets
6. Amount of provision made against deferred tax
7. Provision made for unascertained liabilities e.g. provision for doubtful debts
8. Expenses relating to exempt income under sec 10,11,12 (except sec 10AA and 10(38) This means income under sec 10AA & LTCG (Long term capital gain) exempt under sec 10(38) are subject to MAT provision made for diminution in the asset value.
Deletions to the Net Profit (If amount credited to the Profit and Loss Account)
1. Any reserves or provisions withdrawal
2. Provision made to any income of sec 10, 11 & 12 except 10AA & 10(38) applies.
3. Revaluation reserve withdrawal and credited to profit & loss account to the extent of depreciation on account of revaluation of the asset.
4. The loss brought forward or unabsorbed depreciation, whichever is less as per the books of account. Loss shall not include depreciation. (If in case loss brought forward or unabsorbed depreciation is nil then nothing shall be deducted)
5. The deferred tax amount is credited to the profit & loss account
6. Depreciation amount debited to the Profit and Loss Account (It shall not include the depreciation on revaluation of Assets)
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