Skip to content

Minimum Alternate Tax

Minimum Alternate Tax is also known as MAT is a provision that is in direct tax laws which is for companies, MAT is the provision for limit the tax exemptions which is availed by the companies. The provision requires that the company will not avail more exemption and they should pay at least minimum amount of tax to the government. U/S 115JB, the company has to pay essentially corporate tax to the government and the amount shall be higher of the following:

Normal tax liability of the company which is calculated according to the normal tax provision that is by applying normal tax rate to the company which is applicable to them.

OR

MAT is computed @ 15% for FY 2019-2020 on book profit adding applicable CESS and surcharge.

Which Companies are liable to pay MAT:

All companies whether it is private or public company or Indian company or foreign company, they all are eligible to pay minimum alternate tax , if the income tax which is payable by the company is less than 15% of book profit and CESS & surcharge.

What are the Exception?

There is exception to the company which is receiving income from business of life insurance and shipping income which is liable to pay tonnage taxation which is covered under Income Tax Act, 1961- section 115V to 115VZC.

Calculation of MAT:

MAT is calculated @ 15% of book profit of the tax payer, and according to the section 115JB of income tax act book profit is calculated.

Calculation of book profit:

Book profit means net profit which is calculated in the profit & loss account which is prepared according to the Schedule III of the Companies Act, 2013, this is as per section 115JB (2). There are some cost & income which will be taken into account while computing book profit of the company.

The following amount will be added while computing book profit if the amount is debited to profit & loss account:

  1. Income tax paid.
  2. Amounts which is carried to any reserve except which is described under Section 33AC.
  3. Provision relating to unascertained liabilities.
  4. Provision relating to losses of subsidiary companies.
  5. Dividend paid.
  6. Expenditure that is related to incomes which are exempt under Section 10, Section 11, and Section 12 but it excludes the amount which is under section 10(38).
  7. Income of an individual which is obtained from association of person or body of individuals on which income tax is not payable.

The following amount will be deducted while calculating book profit if the amount is credited to profit and loss account:

  1. Amount that is withdrawn from any reserve;
  2. Incomes that are exempt under Section 10, Section 11, and Section 12 but it excludes the amount which is under section 10(38).
  3. Amount that is related to depreciation which is debited to profit and loss account.
  4. Amount that is withdrawn from re-valuation reserve to the extent that it does not exceed the depreciation amount.
  5. Income of an individual which is obtained from association of person or body of individuals on which income tax is not payable.