Applicability of Minimum Alternate Tax in India

Abstract

Applicability of MAT in India: As per section 115JB (1), every company shall liable to pay a Minimum Alternate Tax. If its tax on total income, computed at the normal rate, is less than 10% of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the company shall be 10% (from Assessment Year 2010-11 15%, 18% for AY 2011-12) on such book profit.

Normally, a company is liable to pay tax on the income computed in accordance with the provisions of the income tax Act, but the profit and loss account of the company is prepared as per provisions of the Companies Act. There were large number of companies who had book profits as per their profit and loss account but were not paying any tax because income computed as per provisions of the income tax act was either nil or negative or insignificant. In such case, although the companies were showing book profits and declaring dividends to the shareholders, they were not paying any income tax. These companies are popularly known as Zero Tax companies. In order to bring such companies under the income tax act net, section 115JA was introduced w.e.f assessment year 1997-98.

MAT proposes the corporate sector to be slim and beautiful. It has been successful so far to burn the fat and make the sloth run; the new scheme will also do the same but in a different manner.