MAT (Minimum Alternative Tax) and Book-profits calculation.
According to Section 115JB (1) of Income-tax Act, 1961, if the income tax payable by a company (whether domestic or foreign) on its total income is less than 15% of its book profits, then the book profits shall be considered as the total income of the assessee.
The tax payable on this total income will be 15% of the book profits, plus any applicable surcharge. The surcharge rates are as follows: 7% for domestic companies and 2% for foreign companies if the total income exceeds ₹1 crore but does not exceed ₹10 crore; 12% for domestic companies and 5% for foreign companies if the total income exceeds ₹10 crore. Additionally, a health and education cess of 4% will be added to the aggregate of income tax and surcharge.
Computation of Book Profit for Minimum Alternate Tax (MAT) calculation under Section 115JB of Income Tax Act.
To compute book profits for Minimum Alternate Tax (MAT) calculation under Section 115JB of Income tax Act, 1961, follow these steps:
- Start with Net Profit/Loss: Begin with the net profit or loss as shown in the profit and loss account prepared in accordance with the Companies Act.
| Add back certain amounts: The following amounts need to be added to the net profit if they are debited to the profit and loss account: | Deduct certain amounts: The following amounts should be deducted from the net profit: |
| Income-tax: Income-tax paid or payable, and the provision therefor; | Amount withdrawn from any reserve: The amount withdrawn from any reserve or provision, if any such amount is credited to the statement of profit and loss. However, the amount withdrawn from reserves/provisions shall not be reduced from the book profit unless the book profit of that year has been increased by those reserves/ provisions; |
| Amount carried to Reserves: Amount carried to any reserves, by whatever name called; | Exempt income: Amount of income to which section 10 or sections 11 or 12 apply, if such amount is credited to the statement of profit and loss; |
| Provisions: Amounts set aside to provisions for meeting liabilities other than ascertained liabilities; | Depreciation: The amount of depreciation debited to the statement of profit and loss (excluding the claim of depreciation on account of revaluation of assets); |
| Provisions for losses of subsidiary companies: Amount of provision for losses of subsidiary companies; | Amount withdrawn from the revaluation reserve: The amount withdrawn from the revaluation reserve and credited to the statement of profit and loss, to the extent it does not exceed the amount of depreciation on revaluation of assets; |
| Dividends: Amount of dividends paid or proposed; or | Share of the assessee in the income of an AOPs or BOIs: The amount of income, being the share of the assessee in the income of an AOPs or BOIs, 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; |
| Expenditure relatable to exempt income: Amount of expenditure relatable to any income to which section 10 or sections 11 or 12 apply; | Income by way of royalty taxable under section 115BBF: The amount of income by way of royalty in respect of patent chargeable to tax under section 115BBF; |
| Expenditure relatable to share of an assessee in the income of an AOP or BOI: Amount of expenditure relatable to income, being share of the assessee in the income of an AOPs or BOIs, on which no income-tax is payable in accordance with the provisions of section 86; | Brought forward loss and unabsorbed depreciation: Aggregate amount of unabsorbed depreciation and loss brought forward in case of 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 are nominated by the Central Government under section 242 of the said Act; company against whom an application for corporate insolvency resolution process has been admitted by the Adjudicating Authority under section 7 or section 9 or section 10 of the Insolvency and Bankruptcy Code, 2016. |
| Expenditure relatable to income accruing to foreign company: The amount or amounts of expenditure relatable to income accruing or arising to an assessee, being a foreign company, from – 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 i.e., section 115A if the income-tax payable thereon in accordance with the provisions of the Act, other than the provisions of this Chapter, is at a rate less than 15%; | Income accruing to foreign company: The amount of income accruing or arising to an assessee, being a foreign company, from, – 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 i.e., section 115A, if such income is credited to the statement of profit and loss and the income-tax payable thereon in accordance with the provisions of the Income-tax Act, 1961 (including DTAAs), other than the provisions of Chapter XII-B, is at a rate less than 15%. |
| Notional loss on the units of business trust: The amount representing- – notional loss on transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust; or – notional loss resulting from any change in carrying amount of said units or – loss on transfer of such units | Notional gain on the units of business trust: The amount representing – (A) the notional gain on transfer of a capital asset, being a share of a SPV to a business trust in exchange of units allotted by the business trust; (B) notional gain resulting from any change in carrying amount of said units; (C) gain on transfer of such units, if any, credited to statement of profit and loss; |
| Amount of expenditure relatable to income referred under section 115BBF: The amount or amounts of expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF; | Brought forward loss or unabsorbed depreciation in case of other companies: Amount of brought forward loss or unabsorbed depreciation, whichever is less, in case of other companies as per books of account. |
| Depreciation: The amount of depreciation; | |
| Deferred tax: The amount of deferred tax and provision therefore; | Deferred tax: The amount of deferred tax, if any such amount is credited to the statement of profit and loss. |
| Amount standing in the revaluation reserve: The profit shall also be increased by the amount standing in revaluation reserve relating to the revalued asset on the retirement or disposal of such asset, in case the same is not credited to the profit and loss account. | Profits of sick industrial company: The amount of profits of a sick industrial company (BIFR company) commencing from the previous year in which the company became sick and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. For this purpose, “net worth” shall have the same meaning as assigned under section 3(1)(ga) of the Sick Industrial Companies (Special Provisions) Act, 1985 |
| Amount of gain arise on transfer units of business trust: When units of business trust are actually transferred, the amount of gain on such transfer has to be added to compute the book profit, since notional gains on transfer of share of a special purpose vehicle to a business trust in exchange for the units of the business trust and notional gains resulting from change in carrying amount of such units would have been deducted to compute book profit. The amount of gain on such transfer, if any, credited to statement of profit and loss in the year of transfer will also be reduced | Loss on transfer of units: The amount of loss on transfer of units acquired in exchange of shares of SPV computed by taking into account the cost of the shares exchanged with the units, where the shares are carried at cost. In case shares are carried at a value other than cost through statement of profit and loss, the amount of loss on transfer of such units has to be computed by taking into account the carrying amount of the shares at the time of exchange; |
| Deferred tax: The amount of deferred tax and provision therefore; | Deferred tax: The amount of deferred tax, if any such amount is credited to the statement of profit and loss. |
| Provision for diminution in the value of any asset: The amount set aside as provision for diminution in the value of any asset. | |
| Depreciation: The amount of depreciation; |
How to Calculate MAT?
MAT is calculated at the rate of 15% of the book profits as mentioned above.
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