Special provisions for payment of

income tax by certain companies or

Minimum Alternate Tax on Companies
[SECTION 115JB]
A large number of companies
showed profits on their profit and
loss account and, at the same time,
distributed huge dividends.

However, these companies did not

pay any tax to the government as
they reported either nil or negative
income under the provisions of the
Income Tax Act. These companies
are popularly known as ‘zero-tax’
companies.
WHY MAT ?
In order to bring ZERO TAX COMPANIES under the I-T
network, Section 115JA was introduced from Assessment
Year 1997-98.

Now, all companies that record a Book Profit shall have

to pay a minimum alternate tax @18.5% (plus surcharge
and cess as applicable) under the Companies Act.
 HISTORY OF MAT
MAT was first introduced in India vide Section 80VVA of the IT Act through the
Finance Act of 1983.

Section 80VVA was omitted by the Finance Act, 1987 (from the assessment year
1988-89), which instead introduced section 115J in a modified form under
Section 115J of Income Tax Act 1961.

Section 115J remained in force for 3 years and was withdrawn by the Finance Act
1990.

Finance Act 1996 again introduced under Section 115JA which was replaced by
Section 115JB by the Finance Act 2000.
MAT RATES OVER YEARS
Assessment Year Basic Rate of MAT
2007-08 to 2009-10 10%
2010-11 15%
2011-12 18%
2012-13 to 2018-19 18.5%
A Company is liable to pay income tax on its total income.Its total
income may comprise of
PARTICULARS AMOUNT
Income under head HOUSE PROPERTY XXXXX
Income under head PROFITS AND GAINOF XXXXX
BUSINESS AND PROFESSION
Income under head INCOME FROM OTHER XXXXX
SOURCES
Income under head CAPITAL GAIN XXXXX

GROSS TOTAL INCOME XXXXX

DEDUCTIONS UNDER SECTION 80 OF INCOME XXXXX

TAX ACT
TOTAL INCOME XXXXX
 WHAT DOES SECTION 115JB SAYS ?
As per the concept of MAT, the tax liability of a company will be HIGHER of the following two
provisions:

Tax liability computed as per

the normal provisions of the
Income Tax Law or
Tax computed as per the MAT
provision on book profit (18.5%
tax rate plus surcharge and
education cess, as applicable)
APPLICABILITY AND NON-APPLICABILITY
OF MAT
The total income of XYZ Ltd. A domestic company,
computed under the normal provisions of Income
Tax Act is Rs. 2,50,000.However the book profits of
company (calculated as per Section 115JB) amount
to Rs 12,25,000. Calculate the tax liability of
company for Assessment 2018-19 on the
assumption the total turnover of the company for
the previous year does not exceed Rs 50 crores.
SOLUTION
Computation off tax liability of the company for the
assessment year 2018-19

Tax liability computed as per the normal provisions of the

Income Tax Law(including surcharge and education cess)
OR
Tax computed as per the MAT provision on book profit
(18.5% tax rate plus surcharge and education cess, as
applicable)
1.Tax on total income at normal rate of tax(including
surcharge)

Total Income 2,50,000

Tax @ 25% of Rs.2,50,000 62,500
Add: Surcharge (Because Total Nil
Income does not increase 1 crore)
Tax and Surcharge 62,500
Add: Education cess @ 2% of tax and surcharge 1,250
63,750
Add: Secondary and higher education 625
cess @ 1% of tax and surcharge
Total Tax as per normal provisions 64,375
2.Tax under MAT
Book Profit 12,25,000
Tax @ 18.5% of Book Profit 2,26,625
Add: Surcharge (Because Total Nil
Income does not increase 1 crore)
Tax and Surcharge 2,26,625
Add: Education cess @ 2% of tax and surcharge 4,533
2,31,158
Add: Secondary and higher education 2,266
cess @ 1% of tax and surcharge
Total Tax as per normal provisions 2,33,424

Tax under MAT (Section 115JB) is more than normal tax on total income . As such
tax payable by Company shall be RS. 2,33,424, rounded off to Rs. 2,33,420.
The total income of Rabinso Ltd. a foreign
company, computed under the normal
provisions of Income Tax Act is Rs. 3,00,000.
However the book profits of company
(calculated as per Section 115JB) amount to Rs
12,50,000. Calculate the tax liability of
company for Assessment 2018-19.
SOLUTION
Computation off tax liability of the company for the
assessment year 2018-19

Tax liability computed as per the normal provisions of

the Income Tax Law(including surcharge and
education cess)
OR
Tax computed as per the MAT provision on book
profit (18.5% tax rate plus surcharge and education
cess, as applicable)
1.Tax on total income at normal rate of tax(including
surcharge)
Total Income 3,00,000
Tax @ 40% of Rs.3,00,000 1,20,000
Add: Surcharge (Because Total Nil
Income does not increase 1 crore)
Tax and Surcharge 1,20,000
Add: Education cess @ 2% of tax and surcharge 2,400
1,22,400
Add:Secondary and higher eductation 1,200
cess @ 1% of tax and surcharge
Total Tax as per normal provisions 1,23,600
2.Tax under MAT
Book Profit 12,50,000
Tax @ 18.5% of Book Profit 2,31,250
Add: Surcharge (Because Total Nil
Income does not increase 1 crore)
Tax and Surcharge 2,31,250
Add: Education cess @ 2% of tax and surcharge 4,625
2,35,875
Add: Secondary and higher education 2,313
cess @ 1% of tax and surcharge
Total Tax as per normal provisions 2,38,188

Tax under MAT (Section 115JB) is more than normal tax on total income. As such
tax payable by Company shall be RS. 2,38,188, rounded off to Rs. 2,38,190.

Every Company Shall have to
prepare its Statement of Profit
or Loss for the relevant
previous year as per the
provisions of Companies Act
2013.
# An Insurance Company
# A Banking Company
# A Company engaged in
generation or supply of power
# Any other class of company
The above companies are not
required to prepare the statement of
profit and loss as per Schedule III if
a form of profit and loss account has
been prescribed under governing
act.
 POINTS TO BE KEPT IN MIND WHILE
PREPARING ANNUAL ACCOUNTS BY COMPANIES
The Accounting Policies
The Accounting Standards adopted for preparing such
accounts including statement of profit and loss
The Method And Rates adopted for calculating the
Depreciation
Shall be the same as have been adopted for the purpose of
preparing such accounts including statement of profit and loss and
laid before the company at its annual general meeting in accordance
with the provisions of Section 129 of the Companies Act, 2013.
Where the company has adopted or adopts the financial year under the
Companies Act, 2013 which is different from the previous year under this Act—

The Accounting Policies

The Accounting Standards adopted
for preparing such accounts
The Method And Rates adopted for
calculating the Depreciation.
Shall correspond to the accounting policies, accounting standards
and the method and rates for calculating the depreciation which
have been adopted for preparing such accounts including statement
of profit and loss for such financial year or part of such financial year
falling within the relevant previous year.
 COMPUTATION OF BOOK PROFIT
Particulars Amount
Net profit as per statement of profit and loss prepared in accordance with XXXXX
Schedule III to the Companies Act, 2013

Add : Following items (if they are debited to the statement of profit and
loss)
Income-tax paid/payable and the provision thereof XXXXX
Amounts carried to any reserves by whatever name called XXXXX

Provisions for unascertained liabilities XXXXX

Provisions for losses of subsidiary companies XXXXX

Dividends paid/proposed XXXXX
 COMPUTATION OF BOOK PROFIT
Particulars Amount
Expenditure related to incomes which are exempt under section 10 [other XXXXX
than section 10(38)] section 11 and section 12
The amount or amounts of expenditure relatable to, income, being share of XXXXX
income of an assessee, on which no income-tax is payable in accordance
with the provisions of section 86

The amount or amounts of expenditure relatable to income accruing or XXXXX

arising to a taxpayer being a foreign company, from :
(a) the capital gains arising on transactions in securities; or
(b) the interest, royalty or fees for technical services chargeable to tax at
the rate or rates specified in Chapter XII
if the income-tax payable on above income is less than the rate of MAT
 COMPUTATION OF BOOK PROFIT
Particulars Amount
The amount representing notional loss on transfer of a capital asset, being XXXXX
share or a special purpose vehicle to a business trust in exchange of units
allotted by that trust referred to in clause (xvii) of section 47 or the
amount representing notional loss resulting from any change in carrying
amount of said units or the amount of loss on transfer of units referred to
in clause (xvii) of section 47
Expenditure relatable to income by way of royalty in respect of patent XXXXX
chargeable to tax under section 115BBF
Amount of depreciation debited to P & L A/c
Deferred tax and the provision thereof XXXXX
Provision for diminution in the value of any asset XXXXX
The amount standing in revaluation reserve relating to revalued asset on XXXXX
the retirement or disposal of such an asset if not credited to statement of
profit and loss
 COMPUTATION OF BOOK PROFIT
Particulars Amount
The amount of gain on transfer of units referred to in XXXXX
clause (xvii) of section 47

Less : Following items (if they are credited to the statement of profit XXXXX
and loss)

Amount withdrawn from any reserve or provision if credited to P&L XXXXX

account

Incomes which are exempt under section 10 [other than section 10(38)] XXXXX
section 11 and section 12

Amount of depreciation debited to statement of profit and loss (excluding XXXXX

the depreciation on revaluation of assets)
 COMPUTATION OF BOOK PROFIT
Particulars Amount
Amount withdrawn from revaluation reserve and credited to statement of XXXXX
profit and loss to the extent it does not exceed the amount of depreciation
on revaluation of assets
The amount of income, being the share of the taxpayer in the income of XXXXX
an association of persons or body of individuals, on which no income-tax
is payable in accordance with the provisions of section 86, if any such
amount is credited to the statement of profit and loss
The amount of income accruing or arising to a taxpayer being a foreign XXXXX
company, from :
(a) the capital gains arising on transactions in securities; or
(b) the interest, royalty or fees for technical services chargeable to tax at
the rate or rates specified in Chapter XII
if such income is credited to the statement of profit and loss and the
income-tax payable on above income is less than the rate of MAT.
 COMPUTATION OF BOOK PROFIT
Particulars Amount
The amount (if any, credited to the statement of profit and loss) XXXXX
representing
(a) notional gain on transfer of a capital asset, being share of a special
purpose vehicle to a business trust in exchange of units allotted by that
trust referred to in clause (xvii) of section 47; or
(b) notional gain resulting from any change in carrying amount of said
units; or
(c) gain on transfer of units referred to in clause (xvii) of section 47,

The amount representing notional gain on transfer of units referred to in XXXXX

clause (xvii) of section 47 computed by taking into account the cost of the
shares exchanged with units referred to in the said clause or the carrying
amount of the shares at the time of exchange where such shares are
carried at a value other than the cost through statement of profit and loss,
as the case may be;
COMPUTATION OF BOOK PROFIT
Particulars Amount
Income by way of royalty in respect of patent chargeable to tax under XXXXX
section 115BBF
Amount of brought forward loss or unabsorbed depreciation, whichever is XXXXX
less as per books of account (in case of a company other than the
company undergoing insolvency proceedings)

Profits of a sick industrial company till its net worth becomes XXXXX
zero/positive
Deferred tax, if credited to statement of profit and loss XXXXX

The amount of profit derived by a tonnage tax company XXXXX

Book profit to be used to compute MAT XXXXX

Income tax paid or payable or any provision

Any Tax On Distributed Profits

Any Interest Charged Under This Act
Surcharge
Education Cess On Income Tax
Secondary And Higher Education Cess On Income
Tax
Transfer To Any Reserve
Transfer to sinking fund

Transfer to General reserve

Transfer to Dividend Equalization Reserves and other transfer

Transfer to Bad Debt reserve or provision for doubtful debts.

Transfer to special reserve under section 36(1)(viii)

Transfer to reserve as per provisions of section 80IA(6), 80-IAB(6) or 10AA.

Transfer to statutory reserve as per the direction of Banking Regulation act or
RBI.
Provisions for unascertained liabilities
Any provision made for any unascertained liability is also to be added to Net
profit while calculating “Book profits”.

AN ASCERTAINED AN UNASCERTAINED
LIABILITY LIABILITY
A liability is said to be It is that liability, which is not
ascertained liability if it is determined /fixed and a
determined or fixed or provision is created for such
imposed under some anticipated liability then it is
contract, law or other such to be added to net profit.
act.
Withdrawal from any Reserve or Provision [Section 11 5JB(2)(i)]
If reserve was created
before 1-4-97

Otherwise than by
By debiting to
debiting to profit and loss
profit and loss A/c A/c

If any amount is withdrawn from Not required to be reduced

such reserve and is credited to P from net profit even if
& L A/C then such amount is to amount is withdrawn by
be reduced from P & L A/C. crediting P & L A/C.
Withdrawal from any Reserve or Provision [Section 11 5JB(2)(i)]

If reserve was created after 1-4-97

Any amount withdrawn from such reserve shall be

reduced from Book Profits Only If

In the year of creation of such reserve/provision, the

net profit was increased by the amount of reserve
created while calculating book profits.
B/F loss or Unabsorbed depreciation
Provides for a Whichever is
deduction of loss less, as per
Section 1 15JB (2)
brought forward
(iii)(explanation)
or unabsorbed books of
depreciation, accounts.

Important point to be noted is that brought forward loss shall

not include brought forward unabsorbed depreciation. In
case brought forward loss includes brought forward
unabsorbed depreciation then, brought forward unabsorbed
depreciation shall be reduced from brought forward loss.
 Other
Comprehensive Reclassify- Not
Income- Items dealt in Profit
not dealt in and Loss
Profit and Loss Account
Account
 Credited to other
Increased by all comprehensive income
amounts in the statement of
profit and loss

Debited to other
Decreased by all comprehensive income
amounts in the statement of
profit and loss
 Non Cash Assets
are distributed to
Shareholders P and L
Demerger
(Event after
Balance Sheet
A/C
Date)

Profit
Loss (Debit)
(Credit)
Add
Subtract
 NO
ADJUSTMENT

Gains Or Losses
Revaluation From Investments
Surplus For Assets In Equity
Instruments
 Lakhan
Company
(RS. 500 Crore)
Rs. 250
No
Crore MAT
Ram and Lakhan Therefore
Company Ignore the
Change in
(RS. 750 Crore) Value
 Calculate It
Transition And Adjust It
Adjustment Over A Period
Of 5 Years
"Year of Convergence" means the previous year within which the
convergence date falls.

"Convergence Date" means the first day of the first Indian Accounting
Standards reporting period as defined in the Indian Accounting Standards
101.

"Transition Amount" means the amount or the aggregate of the amounts

adjusted in the other equity (excluding capital reserve, and securities
premium reserve) on the convergence date.
 Adjustments
Relating To
Adjustments Cumulative Amounts
Relating To Translation
Differences Of A Adjusted In
Investments In The Other
Subsidiaries, Foreign Operation
Joint Ventures Comprehensi
And Associates ve Income

Amounts not
included in
Transition
Amount
Revaluation
Adjustments Surplus For
Relating To Assets
Items Of Gains Or Losses
Property, Plant From
And Equipment Investments In
And Intangible Equity
Assets Instruments
 Set off and
MAT Does Not
Affect
Carry
Forward
Provisions
 Bought
Forward Investment
Business Loss
Unabsorbed Allowance
Depreciation

Loss from
Loss in Loss under activity of
Speculation Head Capital Owning and
Business Gain Mantaining of
Race Horses
 The Company Clarifying that
shall furnish a Book Profit has
report in been computed
prescribed form in accordance
[Form No.29B] with the
from an provisions of this
accountant section.
 The Income
earned by
W.E.F.
SEZ Shall be
Assessment
developers chargable
Year 2012-
and units to MAT.
2013
located in
SEZ
 Amount Of Tax Credit

The amount of credit to be given shall be the difference

between tax paid for any assessment year u/s 1I5JB and the
amount of tax payable by the assessee on its total income.

In other words : Amount of tax credit = MAT — Tax

payable on total income computed as per normal
provisions of Income Tax Act.
 Year in which tax credit shall be
available [Section 115JAA(4)]
Tax credit shall be allowed to set-off in a year when tax becomes
payable on the total income computed in accordance with the normal
provisions of the Income Tax Act, 1961.

In other words, tax credit is available in the previous year in which tax
as per normal provisions of Income Tax Act is more than the tax
payable under MAT. Tax credit cannot be set-off against minimum
alternate tax payable under section 115JB.
 Period for which tax Credit is
available [Section115JAA(3A)]

The amount of tax credit shall be carried forward and

set off upto Fifteenth Assessment Year [w.e.f. A.Y. 2018-
19] immediately succeeding the assessment year in
which tax credit becomes allowable under Section
115JAA(1A).
 Increase/Decrease of Tax Credit

Where as a result of an order under Various

Sections, the amount of tax payable under this Act
is reduced or increased, as the case may be, the
amount of tax credit allowed under this section
shall also be increased or reduced accordingly.