Book profits for mat calculation

It requires that every company shall pay tax on its book profits arrived by preparing its accounts as per schedule iii to companies act 20 part ii of schedule vi to companies act 1956 earlier, subject to adjustments as provided under explanation 1 thereunder. Broadly speaking book profit in context of mat means profit as shown in the profit and loss account adjusted by additions and deductions as provided in respective sections that is section115j, section115ja and section 115jb. Framework for computation of book profit for the purposes of levy of mat under section 115jb of the incometax act, 1961 for indian accounting standards ind as compliant companies may 03, 2016. Taxpayers methodology to set off and carry forward. Specifically, in case of a company, there are two different ways to compute income. Minimum alternate tax mat minimum alternate tax was introduced by finance act, 2000 provides for the levy of a minimum tax on book profits at 18. What is minimum alternate tax, mat news, budget 2020 news. Advanced understanding minimum alternate tax concepts computation of book profits in most easiest manner by mr. Minimum alternative tax is payable under the income tax act.

Accordingly, mat would be calculated using the profits as per the. Calculation of book profits for the purpose of matmaximum alternate tax section 115jb step 1. Complexity in computing the book profit under mat provisions. The taxpayer in the preceding years, while computing book profits under section 115jb of the. If its normal tax liability after claiming deductions is rs 10 crore less than mat, it is required to pay the remainder rs 5 crore as mat and use mat credit equivalent to rs 5 crore to pay tax in the future. Book profit simply means profit as computed in accordance with the provisions but before remuneration paid to partner. Mat is levied at the rate of 9% plus surcharge and cess as applicable in case of a company.

Mat credit, even though the carry forward period of credit has been allowed up to 15 years. The new adjustments can be grouped into following two. The tax computed by applying 15% plus surcharge and cess as applicable on book profit is called mat. Minimum alternate tax part iii computation of book profits. Remuneration and interest to partners section 40b taxadda. Book profit as we have discussed is the profit as shown in profit and loss account of the entity and considered to be the actual profits because it considered all cash and noncash transactions. Minimum alternate tax part iv computation of book profits. But if at the same time provisions of mat also applies then can this deduction can be claimed, because in mat we have to calculate tax payble by normal method which would be 0 in this type of business as 100% deduction allowed, and then 18. Mat stands for minimum alternate tax, and it was launched to reduce if not to bridge the gap between the tax accountability as per income calculation and book profits. Cbdt clarifies on computation of book profit for the. Calculation of book profits for the purpose of mat section 115jb. Like revenue generated through sales made on credit and charging annual depreciation, in which no actual cash transaction occurs and are just book entries. Mat was introduced by the finance act, 1987 with effect from assessment year 199899. Mat is applied when the taxable income calculated as per the normal provisions in the it act is found to be less than 18.

Based on the above, the committee further deliberated on the issues and has now provided its. The objective behind mat or minimum alternate tax is to facilitate taxation of zero tax companies, by making such companies liable to pay a minimum tax based on their book profit. Calculation of mat credit applicability of minimum. Tribunals decision a bare reading of explanation 1iii to section 115jb of the act provides that while computing the book profits, the amount of loss brought forward or unabsorbed depreciation, whichever is. The minimum alternate tax mat on companies challenges and way forward 09. Current mat calculation with companies transitioning to ind as, adjustment to current mat formula is required. For the year concerned, the subsidiary filed its return and was subject to mat on its book profit. Minimum alternate tax is applicable for all companies except for companies involved in the life. In view of the fact that it is a capital receipt and not regarded as incomesection 224 of the income tax actit reduced the same from the book profits for the purpose of mat calculation. For computation of book profit, one may proceed as follows. The goal is to produce a chart like the one i pasted, depicting monthly and mat share of sales for each company. Computation of book profits by ind as compliant companies. Calculation of book profits for the purpose of mat.

Calculate total tax costs and benefits of a cross border transaction including. A company has to pay mat or tax as per normal provisions, whichever is higher. Provisions of mat for payment of tax by certain companies section 115jb tax payable for any assessment year cannot he less than 15% of book profit. Book profit the cumulative book income plus any gain or loss on disposition of assets.

Cbdt issues faqs on computation of book profit for levy of. A mat was introduced for the first time in the ay 198889. For a taxpayer, the determination of correct tax liability is as important an exercise as the legitimate tax planning. Step 2 adjustment to net profit to convert it into book profit which are given under explanation 1 to section 115jb 2. Where in the case of a company, the incometax payable on the total income as computed under the incometax act, is less than15% of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax. Indian tribunal holds book profits not subject to transfer pricing. Mat provisions require book profit to be adjusted against lower of brought forward unabsorbed loss and unabsorbed depreciation and not merely restrict the amount setoff to the lower number. Mat is calculated as 15% of the book profit of the tax assesse. The provisions of section 115jb provide for levy of mat on basis of book profits, i. Book profits as per 115 jb xxxx 10 % of the book profits xxxx surcharge xxxx education cess xxxx total tax liability xxxx kindly note that except these adjustments nothing to be considered for mat calculation. That is, book profit occurs when the current price of a security is higher than the price the holder paid for it, but the holder still owns the security. Accordingly, mat would be calculated using the profits as per the statement of profit and loss before other comprehensive income oci, as the starting point.

Conundrum on brought forward loss treatment under mat. The minimum alternative tax mat is a provision introduced in direct tax laws to limit the tax deductionsexemptions otherwise available to taxpayers so that they pay a minimum amount of tax to the government. In this article, let us explore how tax planning under mat works. As intermediary steps there should be an mat calculation rolling sum then two share calculations mth and mat as % of rows. For example, a company with rs 100 crore book profit is required to pay a minimum tax of rs 15 crore assuming 15 per cent mat rate. Later on, it was withdrawn by the finance act, 1990 and reintroduced by finance act, 1996 with effect from 01st april 1997.

Book profit a gain on an investment that has not yet been realized. What is the minimum alternate tax mat in simple terms. Income tax paid or payable if any calculated as per normal provisions of income tax act. Framework for computation of book profit for the purpose. Book profit under income tax act in the context of mat. Minimum alternative tax mat and its computation of book profit and mat credit under section 115jb of income tax act, 1961. These requirements should be read together with the existing provisions for computation of mat under section 115jb of the act, in particular, the adjustments discussed in explanation 1 to subsection 2.

In todays scenario, the determination of correct tax liability poses several challenges. The current matprovision prescribes certain adjustments to book profits, viz. Framework for computation of book profit for the purposes of levy of mat under section 115jb of the incometax act, 1961 for indian accounting standards ind as compliant companies. It was felt that due to various concession provided in tax laws big corporate groups become zero tax companies. Calculation of book profits for the purpose of matmaximum alternate tax section 115jb. First of all calculate tax as per normal provisions of income tax.

Mat book profit computation 115jb for ind as compliant. Government of india ministry of finance department of revenue central board of direct taxes. As the profit and loss account is subject to notes and qualifications thereon, the profit shown in the profit and loss account may have to be adjusted with the. As per section 115jb of the income tax act, if for any previous year for a company the tax payable on the total income as calculated on the basis of the income tax act, falls below 18. Cbdt circular of clarifications faqs on computation of s. Minimum alternative tax mat and computation of book profits. Amount deductible as remuneration under section 40b if book profit is negative.

Minimum alternate tax mat us 115jb of income tax act, 1961. Book profit definition, examples how to calculate book. Step 1 find out net profit before other comprehensive income oci as per statement of profit and loss of the company. The finance act, 2017 also provides certain adjustments to book profits for mat computation. Where in case of a company, the income tax payable on the total income as computed under the income tax act in respect of any previous year is less than 18. Income tax is calculated on the income, and there are different ways to compute the income.

Therefore, to counter this, as system of mat was introduced. No marginal relief, since the income does not exceed. The treatment of deferred tax charge in determining the tax liability under the special provisions of section 115jb of the incometax act is one such case. The mca also suggested that the above principle may be extended for reckoning book profits for purpose of mat provisions. Calculation of mat credit applicability of minimum alternate tax. Under existing rules, book profit is calculated as per. Cbdt issues faqs on computation of book profit for levy of mat and.

Currently, the mat is applicable only to companies as per the provision of. Mat provisions require book profit off to the lower number. The starting point for matcalculation is profit as per statutory financial statements. Sir if any company is engaged in bio degradable business to which section 80jja applies then the deduction will be 100% of such income. This form of tax is applicable to all companies, including foreign companies that have established their presence in india. Mat is a tax provision reintroduced in 1997 in an attempt to bring zerotaxhighprofits companies into the income tax net. The minimum alternate tax mat on companies challenges. Calculation of book profits for the purpose of matmaximum alternate tax section 115jb for computation of book profit, one may proceed as follows.