The Finance Minister, in the Budget today, announced a bumper for individual tax payers. 
He has changed the tax slabs for men, women and senior citizens. The highest tax slab has now been raised from Rs 5 lakh to Rs 8 lakh, however the Minimum alternative tax (MAT) has been geared up form 15% to 18%.
It's not the first time that MAT has been increased, the last year it was revised up from 10% to 15%, and now a further revision up to 18%. The one Industry that is worried about such a hike is IT industry. Well, they are being regularly bullied these days, with US President making statements on issue related to outsourcing by the US companies and tax benefits to those who shun outsourcing. An upward revision of MAT might have come as another jolt to them, with their plea for extending the STPI scheme being completely ignored.
However one could notice The Finance Minister implicitly saying that he would not go down the path of MAT being asset base as opposed to profit base, as was earlier proposed in Direct Tax Code. The idea of MAT being asset base was actually absurd and it was quite obvious that it would not go that way.
Now, that so much is being discussed about MAT, it definitely calls for a brief description on the same.
(Source : web)
The concept of Minimum Alternate Tax (MAT) was introduced in the direct tax system to make sure that companies having large profits and declaring substantial dividends to shareholders but who were not contributing to the Govt by way of corporate tax, by taking advantage of the various incentives and exemptions provided in the Income-tax Act, pay a fixed percentage of "book profit" (book profit means net profit as shown in the profit and loss account prepared in accordance with the provisions of Part II and III of Schedule VI to the Companies Act, 1956, as increased or reduced by certain adjustments, as specified in that section) as minimum alternate tax. Software companies were brought under the ambit of MAT which were operating as Software Technology Park (STP) Units or Export-Oriented Units (EOUs).
Normally, a company is liable to pay tax on the income computed in accordance with the provisions of the income tax Act, but The Indian Income Tax Act contains large number of exemptions from total income. Besides exemptions, there are several deductions permitted from gross total income. Further, depreciation allowable under the Income Tax Act is not the same as required under the Companies Act. The result of such exemptions, deductions, and other incentives under the Income tax Act in the form of liberal rates of depreciation is the emergence of Zero tax companies which inspite of having high book profit are able to reduce their taxable income to nil.
So, conceptually where the tax payable by a company under the normal provisions is less than 18 per cent of its ‘book profits’, the tax payable shall be deemed to be 18 per cent of such ‘book profits’ as MAT. ‘Book profit’ has to be computed as per the formula prescribed under Section 115JB of the I-T Act, which calls for certain adjustments by way of additions and deletions to the net profit of the company as computed under the Companies Act.
- Ekansh Mittal, Lead Associate - HBJ Capital Services Pvt. Ltd
Email: Ekansh@hbjcapital.com
He has changed the tax slabs for men, women and senior citizens. The highest tax slab has now been raised from Rs 5 lakh to Rs 8 lakh, however the Minimum alternative tax (MAT) has been geared up form 15% to 18%.It's not the first time that MAT has been increased, the last year it was revised up from 10% to 15%, and now a further revision up to 18%. The one Industry that is worried about such a hike is IT industry. Well, they are being regularly bullied these days, with US President making statements on issue related to outsourcing by the US companies and tax benefits to those who shun outsourcing. An upward revision of MAT might have come as another jolt to them, with their plea for extending the STPI scheme being completely ignored.
However one could notice The Finance Minister implicitly saying that he would not go down the path of MAT being asset base as opposed to profit base, as was earlier proposed in Direct Tax Code. The idea of MAT being asset base was actually absurd and it was quite obvious that it would not go that way.
Now, that so much is being discussed about MAT, it definitely calls for a brief description on the same.
(Source : web)
The concept of Minimum Alternate Tax (MAT) was introduced in the direct tax system to make sure that companies having large profits and declaring substantial dividends to shareholders but who were not contributing to the Govt by way of corporate tax, by taking advantage of the various incentives and exemptions provided in the Income-tax Act, pay a fixed percentage of "book profit" (book profit means net profit as shown in the profit and loss account prepared in accordance with the provisions of Part II and III of Schedule VI to the Companies Act, 1956, as increased or reduced by certain adjustments, as specified in that section) as minimum alternate tax. Software companies were brought under the ambit of MAT which were operating as Software Technology Park (STP) Units or Export-Oriented Units (EOUs).
Normally, a company is liable to pay tax on the income computed in accordance with the provisions of the income tax Act, but The Indian Income Tax Act contains large number of exemptions from total income. Besides exemptions, there are several deductions permitted from gross total income. Further, depreciation allowable under the Income Tax Act is not the same as required under the Companies Act. The result of such exemptions, deductions, and other incentives under the Income tax Act in the form of liberal rates of depreciation is the emergence of Zero tax companies which inspite of having high book profit are able to reduce their taxable income to nil.
So, conceptually where the tax payable by a company under the normal provisions is less than 18 per cent of its ‘book profits’, the tax payable shall be deemed to be 18 per cent of such ‘book profits’ as MAT. ‘Book profit’ has to be computed as per the formula prescribed under Section 115JB of the I-T Act, which calls for certain adjustments by way of additions and deletions to the net profit of the company as computed under the Companies Act.
- Ekansh Mittal, Lead Associate - HBJ Capital Services Pvt. Ltd
Email: Ekansh@hbjcapital.com
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