Minimum Alternate Tax: The complete guide about MAT-Minimum Alternate Tax is as follows. Check who are eligible to pay MAT tax and features of MAT Tax. Read more to know how to calculate MAT in Income tax and find MAT rate for Domestic and Foreign Companies.
What is MAT Tax (Minimum Alternate Tax)?
Companies may find various loopholes to avoid income tax by using several exemptions. For such companies, Income Tax Act, 1961 has introduced the MAT. MAT (Minimum Alternate Tax) is a way of making companies pay a minimum amount of tax. The MAT tax was introduced for companies, and later it has been made applicable to all other taxpayers in the form of AMT (Alternate Minimum Tax). Minimum Alternate Tax is a type of direct tax.
Sometimes, it may happen that a company (taxpayer) may have generated income during the year but it may not have paid any tax at all or may have reduced its tax liability by taking advantage of various provisions of Income-tax law like deductions, exemptions, depreciation, etc. The number of zero tax paying companies are increasing. Due to this reason, Minimum Alternate Tax (MAT) was introduced by the Finance Act, 1987 w.e.f the AY (Assessment Year) 1988-89. It was withdrawn by the Finance Act, 1990 and then reintroduced by Finance Act, 1996, w.e.f 1-4-1997. Check out steps for How to calculate MAT in the following section.
The main objective of introducing the MAT is to tax “Zero Tax” companies that make high book profits and declare substantial dividends to their shareholders but have no or insignificant taxable income under the IT Act. Refer the Applicability of MAT Tax Online.
As per section MAT 115JB, under the provisions of the MAT Act, every company foreign or domestic is required to pay Minimum Alternate Tax. This is to ensure that no taxpayer (assessee) with substantial economic income gets to avoid income tax liability on account of various deductions, exclusions, and credits.
What Is AMT (Alternate Minimum Tax)?
The Alternate Minimum Tax (AMT) is similar to MAT, any person or individual whose adjusted total taxable income exceeds Rs. 20 lakhs is liable to pay Alternate Minimum Tax 18.5%.
Who are eligible for the Payment of MAT?
The Minimum Alternate Tax payment is only to done by the companies, and this MAT is not applicable to other taxpayers like individuals, Hindu Undivided Families (HUFs), Partnership firms, etc. The AAR (Authority for Advance Rulings) has held that the provisions of section 115JA apply to foreign companies on the profits derived from operations in India. Check out the Eligibility for Payment of MAT/Minimum Alternate Tax here. Look at the applicability of MAT tax in the following section.
Alternate Minimum Tax (AMT) Applicability (Ss.115JC, 115JD, 115JEE, 115JF, Rule 40BA)
- Limited Liability Partnership claiming deduction under section 10AA, from section 80H to Section 80RRB (excluding section 80P) and 35AD* (w.e.f. FY 2011-12).
- Individual, HUF, AOP, BOI Artificial Juridical Person claiming deduction under section 10AA, from Section 80H to Section 80RRB (excluding Section 80P) and 35AD* having adjusted total income (ATI) exceeding ₹ 20 lakh (w.e.f. FY 2012-13).
* Deduction u/s 35AD (w.e.f. FY 2014-15)
Steps for computing AMT Minimum Alternate Tax
- Calculate total income without giving an effect of Chapter XII-BA.
- Compute Adjusted Total Income (ATI) (for computation see below)
- Calculate total taxable income (computed in (i) above) as per normal rates and on ATI (calculated in (ii) above) at the specified Mat Tax rate.
- In case tax on total income is equal or more than the tax on ATI, AMT is not applicable. However in case tax on ATI is more than the tax on total income, ATI would be deemed to be Total Income, and it would be liable to tax at the rate of 19.055%.
- If provisions of AMT are applicable, obtain a report of the Accountant in Form No. 29C certifying computation of ATI and AMT.
Minimum Alternate Tax Calculation/Computation
As per the MAT Act, the Minimum Alternate Tax liability of a company will be higher of the following. Check out the MAT Calculation for AY 2017-18 and MAT Provision for AY 2017-18 in the following section.
- Tax liability computed as per the normal provisions of the Income Tax Law, i.e., the tax computed on the taxable income of the company by applying the tax rate applicable to the company. Such tax can be termed as the normal tax liability.
- Tax computed at the MAT rate of 18.5% on book profit. The tax computed by applying 18.5% (plus surcharge & cess as applicable) on book profit is called Minimum Alternate Tax.
Book Profit: “Book profit” means the Net Profit as shown in the profit and loss account for the relevant previous year as determined by the provisions of Schedule III to the Companies Act, 2013, with certain adjustments as given in section MAT 115JB of the Act.
The taxable income of Shinee Pvt. Ltd. computed as per the provisions of Income tax Act = Rs. 8,40,000.
Book profit of the company computed as per the provisions of section MAT 115JB = Rs. 18,40,000.
The tax liability of a company will be higher of: (i) Normal tax liability, or (ii) MAT.
- The Normal tax rate applicable to an Indian company is 30% (plus cess and surcharge as applicable). That is the tax at the rate of 30% on Rs. 8,40,000 = Rs. 2,52,000 (plus cess).
- Book profit of the company is Rs. 18,40,000. MAT Tax liability (excluding cess & surcharge) @ 18.5% on Rs. 18,40,000 = Rs. 3,40,400.
Thus, the tax liability of Shinee Pvt. Ltd. will be Rs. 3,40,400 (plus cess as applicable) because it is higher than the normal tax liability.
MAT Rate -MAT Tax Rate
|Pariculars||Tax rate||Surcharge||Education Cess||Secondary and Higher Education Cess||Effective Tax|
|i.||Domestic Companies with total income not exceeding 1 Crore.||18.5%||Nil||2%||1%||19.055%|
|ii.||Domestic Companies with total income between 1 Crore to 10 Crore.||18.5%||7%||2%||1%||20.389%|
|iii.||Other Domestic Companies||18.5%||12%||2%||1%||21.342%|
|iv.||Foreign Companies with total income not exceeding 1 Crore.||18.5%||Nil||2%||1%||19.06%|
|v.||Foreign Companies with total income between 1 crore to 10 crore||18.5%||2%||2%||1%||19.44%|
|vi.||Other Foreign Companies||18.5%||5%||2%||1%||20.01%|
For Companies, the Minimum Alternate Tax (MAT) Rate is 18.5%. The Minimum Alternate Tax Rate as per AY 2017-18 or AY 2016-17 is as follows. Check the Tax rates (including Surcharge, Education Cess and Secondary and Higher Education Cess) applicable for both Domestic and Foreign companies. Here You can check MAT Rate for AY 2017-18 and MAT Rate for AY 2016-17. Refer these MAT Tax Rate
What Is The Difference Between Alternate Minimum Tax (AMT) and Minimum Alternate Tax (MAT)?
Although MAT and AMT are similar, there is few difference which apart both from each other. Let’s have a look at the difference between MAT and AMT.
|S.no||MAT Minimum||AMT (Alternate Minimum Tax)|
|1.||Minimum Alternate Tax- (MAT tax) is applicable on companies||AMT Tax (Alternate Minimum Tax) applies to all the entities other than companies (even individuals) who claim profit linked Tax deductions.|
|2.||MAT is payable on book profit if the tax payable is less than MAT||AMT is payable on adjusted total income of 20 lakhs or more, if tax payable is less than AMT.|
|3.||MAT Rate: 18.5% + Surcharge (5%) + Education Cess (3%) = 20%||AMT Rate : 18.5% + Education Cess (3%) = 19.05%|
Features of MAT regime
Certain important provisions and features of the current Minimum Alternate Tax regime is follows as below.
For companies based on principles equity, MAT Credit entitlement is a beneficial provision. If the tax paid by the company is more than that accrued, then the excess amount is credited back as the tax credit to the company. Thus, MAT credit can be understood as the difference between the tax calculated under the MAT provisions of the Act and calculated under the general provisions of the Income Tax Act.
Such excess of the Minimum Alternate tax credit is allowed to be carry forward and set-off in the FY (financial year) in which the company is charged to tax under the general provisions of the IT Act. This MAT credit can be set-off and carried forward for 10 consecutive AY (assessment years) succeeding (after) the year in which the tax credit first accrued.
Advance Payment of Tax:
Under the Income Tax Act, every taxpayer should pay the tax in advance if the advance tax liability as computed is Rs. 10,000/- (by the provisions of Chapter XVII of the Act) or more during the FY (financial year).
As per Rule 40B of the Income Tax Rules, 1962, every company to which Minimum Alternate Tax is applicable to furnish a MAT Tax report in the prescribed Form 29B.
MAT Applicability in Special Economic Zones (SEZs):
At first, when the government rolled the MAT Tax, this MAT did not apply to profit earned by any company via business activities and operations in SEZs (Special Economic Zones). However, the amendments by the Finance Act, 2011 to include all such companies operating in Special Economic Zones (SEZs) and earning profit from there, under the Section 115JB for MAT payment.