Minimum Alternate tax (MAT) – Section 115JB

• It is the tax computed @ 15% on book profit plus surcharge and cess as applicable
• If the assessee is located in IFSC (International financial services centre), then MAT is applicable @ 9% instead of 15%.
• Interest under section 234A, 234B, 234C is also applicable to an assessee paying MAT under section 115JB.

• At times, in spite of generating a considerable amount of income, companies either pay zero income tax or pay a very less amount of tax by taking advantage of various provisions of the Income tax act, 1961.
• Due to an increase in the number of companies not paying any income tax, MAT was introduced by the government under the Finance Act, 1987

The provisions of section 115JB (MAT) is applicable for all companies except,

• Life insurance company
• Companies who have exercised option under section 115BAA (or) 115BAB
• Shipping company, who have exercised their option to pay tax on the tonnage income as per the tonnage taxation scheme.
• Foreign company with which India is,
  • having Double taxation Avoidance Agreement and the assessee does not have a permanent establishment in India in accordance with the provisions of such agreement.
  • not having Double taxation Avoidance Agreement and the assessee is not required to seek registration under any law relating to companies.
• A foreign company, whose total income comprises of profits and gains arising from business referred to in section 44B, 44BB, 44BBA, or 44BBB and such income has been offered to tax at the rates specified in those sections.

Frequently Asked Question

1. Is MAT applicable to Foreign Companies?

Yes, MAT is applicable to foreign companies subject to conditions mentioned above.

As per section 115JB, the tax liability of the company will be,

• Tax computed on the taxable income as per the normal provisions of the Income tax Act, 1961 (or)
• The tax computed @ 15% on book profit plus surcharge and cess as applicable.

(Whichever is higher)

Frequently Asked Question

1. Is MAT applicable to companies located in Special Economic Zone?

Yes, companies carrying on business in SEZ are also liable to comply with the provisions of section 115JB, hence liable to pay MAT.

Book profit for the purpose of MAT 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 or decreased by items as mentioned below.

PARTICULARS	AMOUNT
Profit/loss as per P&L account	XXX
ADD: Following items (if they are debited to P&L account)
a)    Income tax paid/payable(1)	XXX
b)    Dividend paid/payable	XXX
c)    Any amount transferred to reserve A/c	XXX
d)    Loss/provision for loss of subsidiary	XXX
e)    Provision for unascertained liability/Contingent liability	XXX
f)     Expenses for earning income under section 10,11,12	XXX
g)    Total depreciation debited to P&L account	XXX
h)    Provision for diminution in the value of asset	XXX
i)      Deferred tax(liability)	XXX
j)      Expenses relating to share of income of AOP/BOI	XXX
k)    Notional loss regarding business trust unit	XXX
l)      Expenses relating to income of foreign company from Capital gain on securities Interest, Royalty and FTS (If tax rate on above income is less than MAT rate i.e., 15%)	XXX
m)   Balance in revaluation reserve on retirement or disposal of asset (If not credited to P&L account)	XXX
LESS: Following items (if they are credited to P&L account)
a)    Amount withdrawn from any reserve (if reserve made through appropriation of P&L in earlier years)	(XXX)
b)    Income exempt under section 10,11,12	(XXX)
c)    Deferred tax(Asset)	(XXX)
d)    Profits of sick industrial unit	(XXX)
e)    Share of income from AOP/BOI	(XXX)
f)     Notional gain regarding Business trust unit	(XXX)
g)    Royalty income from patents under section 115BBF	(XXX)
h)    Income of foreign company from, Capital gain on securities Interest, Royalty and FTS (If tax rate on above income is less than MAT rate i.e., 15%)	(XXX)
i)      Transfer from revaluation reserve (to the extent of depreciation on revalued asset)	(XXX)
j)      Depreciation as per books (except depreciation on revaluation of asset)	(XXX)
k)        Brought forward loss (or) unabsorbed depreciation (whichever is less) *(2)	(XXX)
Book profit as per MAT	XXX

1.  Income tax includes tax on distributed profits (section 115O) or distributed income (section 115R), Interest, Surcharge and Cess
2. Both Brought forward loss and unabsorbed depreciation will be deducted if,
   • Company against whom application for corporate insolvency resolution process has been admitted under IBC, 2016, or
   • Company and its subsidiary of which board of directors has been suspended by tribunal under section 241, 242 of Companies Act, 2013

Frequently Asked Question

3.What is the difference between MAT and AMT?

• The provisions of MAT are applicable to a corporate taxpayers only.
• The provisions relating to AMT are applicable to non-corporate taxpayers.

• If the company pays MAT as per section 115JB, then the excess of MAT paid over the tax liability computed as per normal provisions of the act can be claimed as MAT credit.

• The brought forward MAT credit can be adjusted in the subsequent years, only against tax computed as per normal provisions of the income tax act.
• Further, MAT credit can be set off only upto the extent of difference between tax computed as per normal provisions and MAT for that subsequent year.(i.e. maximum tax liability against which MAT credit can be set off in the subsequent year = difference between tax computed as per normal provisions of the act and MAT of that year).

• The MAT credit can be carried forward only for a period of 15 years after which it will lapse.
• No interest is paid to the taxpayer in respect of such credit.
• In case of conversion of a company into LLP, MAT credit of that company cannot be carried forward by the LLP.

• Every company whose income is less than 15% of their book profit is required to obtain a report from Chartered Accountant in form 29B one month before the due date of filing Income tax return under section 139