MAT (Minimum Alternative Tax) is a tax payable under Income tax Act 1961. The concept of MAT was introduced to target those companies that make huge profits and pay dividend to their shareholders but pay no/minimal tax by taking advantage of the various deductions, and exemptions allowed under income tax act. But with the introduction of MAT, the companies have to pay a fixed percentage of their profits as Minimum alternate Tax.
MAT is calculated u/s 115JB of the income tax Act. Every company should pay higher of the tax calculated under the following two provisions:
Tax liability as per the Normal provisions of income tax act(tax rate 30% plus 3% Edu cess plus surcharge (if applicable)
Tax liability as per the MAT provisions given in Sec 115JB(18.5 % of Book Profits Plus 3 % edu cess plus surcharge if applicable)
How to Calculate MAT?
MAT is equal to 18.5% of Book profits(Plus Surcharge and cess as applicable). Book profit means the net profit as shown in the profit & loss account for the year as increased and decreased by following items:
(+) Additions to the Net Profit(If debited to P/l A/c):
Income Tax paid or payable if any calculated as per normal provisions of income tax act 1961
Transfer made to any reserve
Dividend proposed or paid
Provision for loss of subsidiary companies
Depreciation including depreciation on account of revaluation of assets
Amount/provision of deferred tax
Provision for unascertained liabilities e.g. provision for bad debts
(-)Deletions to the Net Profit (If credited to P/L A/c)
Amount withdrawn from any reserves or provisions
The amount of income to which any of the provisions of section 10, 11 & 12 except 10AA & 10(38) apply.
Amount withdrawn from revaluation reserve and credited to profit & loss account to the extent of depreciation on account of revaluation of asset.
Amount of loss brought forward or unabsorbed depreciation, whichever is less as per the books of account. However loss shall not include the depreciation. (if loss brought forward or unabsorbed depreciation is nil then nothing shall be deducted.)
Amount of Deferred Tax, is any such amount is credited in the profit & loss account
What isMAT CREDIT ?
When any amount of tax is paid as MAT by the company, then it can claim the credit of such tax paid in accordance with the provision of section 115JAA.
Allowable Tax Credit = Tax paid as per MAT calculation — Income tax payable under normal provision of Income tax Act, 1961.