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MINIMUM ALTERNATE TAX

MINIMUM ALTERNATE TAX. 9 th Day Session III& IV Slide 9.4. INTRODUCTION.

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MINIMUM ALTERNATE TAX

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  1. MINIMUM ALTERNATE TAX 9th Day Session III& IV Slide 9.4

  2. INTRODUCTION • Section 115JA is applicable for the assessment years 1997-98 to 2000-01. It provides that in the case of a company (maybe Indian or foreign) if the total income, as computed under the Act, is less than 30 per cent of the “book profit”, the total income of such assessee, shall be deemed to be 30 per cent of the book profit. Slide 9.4

  3. INTRODUCTION • Section 115JB has been inserted from the assessment year 2001-02. It provides that in case the tax liability of a company (maybe Indian company or foreign company) is less than 7.5 per cent (plus surcharge) of the book profit, such book profit shall be deemed to be the ‘total income’, chargeable to tax at the rate of 7.5 per cent (plus surcharge ). Slide 9.4

  4. BOOK PROFITS • Book profit - How to determine [Sec. 115JB] - Net profit as per profit and loss account (after 13 adjustments) is book profit. Slide 9.4

  5. BOOK PROFITS • Assessing Officer’s power to alter net profit - Only in the following two cases, the Assessing Officer can rewrite the profit and loss account — • If profit and loss account is not prepared according to the Companies Act - If it is discovered that the profit and loss account is not drawn up in accordance with the provisions of Parts II and III of the Sixth Schedule to the Companies Act, the Assessing Officer can recalculate the net profit. In a case where there is no allegation of fraud or misrepresentation but only a difference of opinion as to the question whether a particular amount should be properly shown in the profit and loss account or in the balance sheet, the provisions of section 115JB do not empower the Assessing Officer to disturb the profit as shown by the assessee Slide 9.4

  6. BOOK PROFITS • If accounting policies, accounting standards or rates or method of depreciation are different - According to the first proviso to section 115JB(2) the accounting policies, the accounting standards adopted for preparing such accounts, the method and rates of depreciation which have been adopted for preparation of the profit and loss account laid before the annual general meeting, should be followed while preparing profit and loss account for the purpose of computing book profit under section 115JB Slide 9.4

  7. ADJUSTMENTS TO BOOK PROFITS • POSITIVE ADJUSTMENTS (i.e. additions) • the amount of income-tax paid or payable , and the provisions therefor ; or • the amounts carried to any reserves, by whatever name called  ; or • the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities ; or • the amount by way of provision for losses of subsidiary companies ; or • the amount or amounts of dividends paid or proposed ; or • the amount or amounts of expenditure relatable to any income to which section 10 or 10A or 10B or 11 or 12 apply Slide 9.4

  8. ADJUSTMENTS TO BOOK PROFITS • Negative ADJUSTMENTS (i.e. deductions) • the amount withdrawn from reserves or provisions, if any such amount is credited to the profit and loss account; or • the amount of income to which any of the provisions of section 10, 10A or 10B or 11 or 12 apply, if any such amount is credited to the profit and loss account ; or • the amount of loss brought forward or unabsorbed depreciation, whichever is less, as per books of account [“loss” for this purpose does not include depreciation and, therefore, in a case where an assessee has shown profit in a year, but after adjustment of depreciation, it results in loss, no adjustment in book profit is allowed] ; or Slide 9.4

  9. ADJUSTMENTS TO BOOK PROFITS • Negative ADJUSTMENTS (i.e. deductions) • the amount of profit eligible for deduction under section 80HHC ; or • the amount of profit eligible for deduction under section 80HHE ; or • the amount of profit eligible for deduction under section 80HHF ; or Slide 9.4

  10. ADJUSTMENTS TO BOOK PROFITS • Negative ADJUSTMENTS (i.e. deductions) • the amount of profits of sick industrial company for the assessment year commencing from the assessment year relevant to the previous year in which the said company has become a sick industrial company under section 17(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 and ending with the assessment year during which the entire net worth (i.e., paid-up capital plus free reserves) of such company becomes equal to or exceeds the accumulated losses [“Free reserves” for this purpose means all reserves credited out of the profits and share premium account but does not include reserves credited out of re-evaluation of assets, write back of depreciation provisions and amalgamation]. Slide 9.4

  11. TREATMENT OF RESERVES • The amount withdrawn from reserves and credited to profit and loss account shall be reduced as follows— • a. the amount withdrawn from any reserve created before April 1, 1997 otherwise than by way of a debit to the profit and loss account, shall not be reduced from the book profits; and • b. the amount withdrawn from any reserves or provisions created on or after April 1, 1997, which are credited to the profit and loss account, shall not be reduced from the book profits, unless the book profits were increased by the amount transferred to such reserves or provisions in the year of creation of such reserves (out of which the said amount was withdrawn). Slide 9.4

  12. CREDIT IN RESPECT OF MAT • Section 115JAA is applicable for assessment years 1997-98 to 2000-01. It provides that where tax is paid in any assessment year in relation to the deemed income under section 115JA, a tax credit shall be allowed in subsequent years. It may be noted that tax credit in respect of MAT under section 115JB is not available Slide 9.4

  13. CREDIT IN RESPECT OF MAT • Scheme of tax credit - When applicable - One can find out the amount of tax credit under section 115JAA under the following steps — • 1. Find out total income of the company (ignoring the provisions of section 115JA). • 2. Find out 30 per cent of book profit (as per provisions of section 115JA). No tax credit is available under section 115JAA if total income (as computed under step 1) is equal to or more than 30 per cent of book profit. • 3. Find out tax on (1) (supra). • 4. Find out tax on (2) (supra). Slide 9.4

  14. CREDIT IN RESPECT OF MAT • 5. The amount of tax credit is equal to the tax paid under step 4 as reduced by the tax computed under step 3. In other words, the extra tax which is paid only because of provisions of section 115JA will be qualified for tax credit under section 115JAA. One of the conditions for claiming tax credit is tax (as computed under step 4) should be “paid”. “Payable” as used is commercial transactions means “to be paid” rather than “which is paid”. The Act has also maintained the difference between “paid” and “payable”. See, for instance, the provisions of sections 24(1)(ii), 24(1)(vi), 24(1)(vii) and 43(2). To put it differently, if tax under step (4) supra is not paid, tax credit is not available. Slide 9.4

  15. CREDIT IN RESPECT OF MAT • Carry forward and set off of tax credit - The amount of tax credit under section 115JAA shall be carried forward and set off subject to the following propositions — • 1. No interest is payable in respect of tax credit. • 2. Tax credit shall be allowed set off in a future year in which tax becomes payable on the total income computed in accordance with the provisions other than section 115JA or 115JB. Slide 9.4

  16. CREDIT IN RESPECT OF MAT • 3. Set off in respect of brought forward tax credit will be allowed for any assessment year to the extent of — • a. tax computed on total income (ignoring section 115JA or 115JB) ; minus • b. tax computed on 30 per cent of “book profit” up to the assessment year 2000-01 or 7.5 per cent (plus surcharge) of book profit from the assessment year 2001-02. • It may be noted that set off is not allowed in the year in which tax computed under (a) supra is lower than (b) supra Slide 9.4

  17. CREDIT IN RESPECT OF MAT • 4. Carry forward shall not be allowed beyond the fifth assessment year immediately succeeding the assessment year in which tax credit becomes allowable. • 5. There is no other condition to claim the benefit of set off of tax credit. For instance, there is no provision for submission of return of income within the time limit prescribed by section 139, or for payment of tax in time. Tax credit is allowed even if tax was paid late. Moreover, there is no provision that the Assessing Officer should determine the tax credit which shall be carried forward. • It may be noted that tax credit in respect of MAT under section 115JB is not available Slide 9.4

  18. CREDIT IN RESPECT OF MAT • Variation in tax credit in certain cases - Sub-section (6) of section 115JAA discusses the case where one has to adjust tax credit pursuant to certain orders. Adjustment in tax credit has to be made if tax payable is increased or decreased because of any order under the following provisions — • a. order of assessment/intimation under section 143(1) or 143(3) ; • b. reassessment order under section 147 Slide 9.4

  19. CREDIT IN RESPECT OF MAT • c. rectification order under section 154 or 155 ; • d. order of Settlement Commission under section 245D(4) ; • e. order of Deputy Commissioner (Appeals) or Commissioner (Appeals) under section 250 ; • f. order of Appellate Tribunal under section 254 ; • g. Court’s order under section 260 or 262 ; and • h. revisionary order of the Commissioner under section 263 or 264. Slide 9.4

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