sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Latest Expert Exchange
« News Headlines »
 Want to file your income tax return online? Here’s the first step
 Good news for income tax payers! Taxmen can’t deny assessee’s legitimate claim in revised return, rules ITAT
 Can file revised return after notice issued by I-T ITAT
 How to file income tax returns online if you don't have Form 16 ITR 2018-19
 These 5 websites can help you file your ITR Income tax e-filing
 Here's why some retirees no longer have to file a tax return
 How to file different categories of ITR forms online Income tax e-filing
 Here are other documents you need to file online ITR Got your Form-16 for FY18?
 10 must have documents to file your tax return
 Know all about how to file ITR FY 2017-18
 Government extends sale of pre-GST goods with stickers of revised price till July 31

Can MAT help ensure equity among corporate taxpayers?
February, 16th 2007

In India minimum alternate tax (MAT) provisions were introduced, as a measure of equity, to tax companies on the basis of their ability to pay and to discourage companies from arranging tax affairs in a manner which would result in huge book profits and substantial dividend payout but no tax liability.

It is worthwhile to note that such differences arise due to variations between tax and book deprecation, accounting of deferred revenue expenditure, tax incentives, etc. The history of MAT provisions in India can be traced back to Section 80VVA of the Income-tax Act, 1961 (the Act). This section was introduced by the Finance Act 1983 and restricted certain incentive deductions. Thereafter, the erstwhile section 115J was introduced by the Finance Act 1987, followed by erstwhile section 115JA that was introduced by the Finance (No. 2) Act 1996

Under the current provisions of Section 115JB that was introduced by the Finance Act 2000, if the tax payable on total income computed under the Act is less than 10% of the book profits of the company, the tax payable for the said period will be 10% of such book profit. The manner in which the book profits are to be computed has been specifically provided.

HurdlesSection 115JB has been the subject matter of extensive litigation on several fronts. A few key issues are outlined below:

There seems to be a disparity in the applicability of MAT to various taxpayers enjoying an income-tax holiday. To illustrate, MAT does not apply to units eligible for tax holiday under Sections 10A/10B (Units in STPI, EOUs etc). However, taxpayers who have made substantial investments for setting-up industrial undertakings for power generation or infrastructure facilities and are eligible for similar tax holidays are still subject to MAT.

Similarly, under the current provisions long-term capital gain is considered as a part of book profit although the taxpayer has made investment in prescribed bonds for claiming tax exemption. This seems to be an unintentional contradiction, as legislation would not like to encourage taxpayers to make investment in bonds and at the same time take away the benefit by taxing it under MAT.

For computing book profits, the brought forward loss or unabsorbed depreciation as per books of accounts, whichever is lower, is allowed as a deduction. In a situation where the unabsorbed depreciation is nil but there are unabsorbed losses, it results in an absurd situation as the amount that would be eligible for a reduction in computing the book profits would be nil. It has been long-standing demand of the taxpayers that both should be allowed to be setoff.

Section 115 JB was introduced to simplify the legal complications of erstwhile Section 115JA. However, this has resulted into disparities discussed above, which need immediate attention. Having said that, there have been several representations to the government to abolish the MAT levy. It is pertinent to note that the Vijay Kelkar Committee report on reform of direct taxes recommended abolition of MAT and alignment of taxable income and book profit. While it is more or less a settled law that MAT is applicable to foreign companies having a permanent establishment in India, with Indian businesses going global and substantial increase in cross-border trade, MAT provisions would require further fine tuning for taxes paid abroad.

The concept of MAT is not exclusive to India and it exists in several countries such as Austria, Canada, Mauritius, Mexico, Spain and USA. The US mechanism merits further discussion. USA has a mechanism of alternative minimum tax (similar to MAT in India), introduced in 1978, and it applies to individuals as well as trusts (in India it currently applies to companies only).

AMT works as a separate tax system in the US with its own allowable deductions and credit limitations. The tax is imposed at a flat rate of 20% on AMT income. To the extent AMT exceeds regular tax, a minimum tax credit is generated and carried forward to offset the taxpayers regular tax to the extent it exceeds AMT in future years. Further, AMT exemption applies to small business corporations that meet certain criteria.

(Authors are with Ernst & Young)

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Content Management System developers CMS developers Content Management Solutions CMS Solutions CMS India Content Management System India CMS development India Website CMS Website Content Management India Portal CMS India CMS Outsourcing CMS Vendor Complete CMS Custom CMS Services

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions