In order to ensure a steady cash flow in the form of tax revenue without completely invalidating the aforementioned incentives for businesses, the government has developed the concept of MAT. The concept of MAT ensures that companies are taxed in proportion to their tax capacity. Companies that opt for MAT must pay 15% on the accounting profit in the form of tax as well as applicable fees and surcharge. MAT or Minimum Alternative Tax limits tax exemptions for companies. There have been times when businesses have tried to reduce their tax liability by waiving the Income Tax Act. Many companies have also managed to generate zero taxable income. Therefore, the Indian government has developed the concept of MAT to ensure that companies do not avoid taxes. 2. The tax liability according to MAT regulations is indicated in § 115JB (The tax rate is 15% of the accounting profit plus 4% school tax plus a surtax, if applicable, as of AY 2020-21 (FY 2019-20)).

Prior to fiscal year 2019-2020, MAT rates were 18.5%. In accordance with Note 1 to Article 115JB (2), for the purposes of Article 115JB, accounting profit means the net profit as disclosed in the income statement set out in Annex III to the Companies Act 2013, adjusted by certain items prescribed below: – If an amount of tax is paid by the entity as a MAT, it may claim the credit for that tax paid under section 115JAA. MAT credits can only be carried forward and adjusted to normal tax up to 15 fiscal years from the year in which that MAT is paid. This applies from fiscal year 2017-18. Until now, MAT credits can only be carried over for a period of 10 years. MAT stands for Minimum Alternate Tax. As the name suggests, this is a minimum tax that every business must pay if other conditions are met. Just as MAT was introduced for businesses, AMT (Alternate Minimum Tax) is being rolled out for some other businesses. In this article, we will discuss MAT Credit Concepts and its accounting.

The MIT provisions fall under Section 115JB of the Income Tax Act. Before we understand the provisions of the law and the accounting treatment, we need to see what the concept of MAT is and why it was introduced in the first place. So, let`s start our journey. To calculate the corporation`s tax remission, the tax must first be calculated in accordance with the normal provisions of the Income Tax Act. Later, it should be compared with the tax charged @ 18.5% (plus surcharge and disposal) on the accounting profit. This is called the MAT [The MAT rate was reduced from fiscal year 19-20 to 15%]. According to this transaction, the highest tax liability must be paid by the company. (As of fiscal year 2019-2020, businesses that opt for the optional tax rate will no longer have to pay MAT) But with the introduction of MATs, companies will have to pay a fixed percentage of their profits as a minimum alternative tax.

MAT applies to all companies, including foreign companies. The MAT is calculated in accordance with Section 115JB of the Income Tax Act. The amount representing the notional gain from the transfer of the shares referred to in clause (xvii) of Article 47, calculated taking into account the cost of the shares exchanged for the shares referred to in that subparagraph or the carrying amount of the shares at the time of the exchange, if those shares are valued at a value other than the purchase price in the profit and loss account; if necessary; MAT stands for “Minimum Alternative Tax”, which was introduced to collect taxes from companies that have enjoyed tax benefits or exemptions despite large profits. These companies pay substantial dividends to shareholders, but benefit from various provisions of the Income Tax Act, such as exemptions; Deductions, etc. to avoid taxes. These companies are, in principle, zero taxpayers or minimum taxpayers. In view of the increase in the number of these low-tax enterprises, the MAT was introduced by the Finance Act of 1987 with effect from the following financial year, i.e. 1988-89. It was then withdrawn by the Finance Act of 1990, then reintroduced by the Finance Act (No. 2) of 1996, w.e.f, 1-4-1997.

This flexibility was granted to make the 2016 Insolvency and Bankruptcy Code more effective and efficient. Companies that have losses may not pay taxes, but since MAT is applicable to them, there has been some payment as tax, which has affected their financial situation. With the relaxation of MAT standards, these companies have the opportunity to achieve a reduction in the total amount of unabsorbed depreciation and loss carry-forwards (excluding unabsorbed depreciation). This will eventually help all businesses that are facing financial difficulties. MAT stands for Minimum Alternative Tax. MAT was introduced by the 1987 Finance Act with effect from the 1998-99 fiscal year. It was subsequently withdrawn by the Finance Act 1990 and reintroduced by the Finance Act 1996 with effect from 1 April 1997. Currently, the MAT only applies to Article 115JB companies. So let`s try to understand it with an example: MAT stands for Minimum Alternate Tax, is the minimum tax to be paid by a company. To better understand this, let`s take a quick look at the background.

The income of a company is calculated in accordance with the provisions of the Companies Act. The income calculated in this way is adjusted according to income tax provisions, and companies claim deductions/exemptions from income based on their eligibility. However, it has been observed that even companies with good accounting profits ended up paying very little or no taxes at all. In order to bring these companies into the field of taxation, MAT was introduced. However, with the inclusion of the 2018-19 EU budget, it has been clarified that a foreign company in a particular infrastructure sector operating in the country with the permanent establishment (PE) covered by Article 44BB does not need to disclose the MAT. They only have to pay a certain percentage of the deemed tax on all of their transactions. With this new tax bracket and MAT exemption, many companies in the drilling market such as Halliburton and Schlumberger, shipping companies such as MSC Mediterranean and Mitsui OSK Lines or airlines such as British Airways are completely exempt from MAT. This decision was taken to increase foreign activities in India.

Overall tax credit adjustments: MAT credit adjustments or offsets can sometimes be more difficult, let`s understand with an illustration. MAT represents 15% of the accounting profit (plus surtax and disposal, if applicable) as of AY 2020-21 (MAT was 18.5% before AY 2020-21). Accounting profit means net income as presented in the income statement for the year, plus and minus the following: IndiaFilings.com strives to help entrepreneurs and small business owners start, manage and grow their business at an affordable price.