MAT stands for “Minimum Alternate Tax,” which has been introduced to collect tax from companies that have been enjoying tax benefits or tax exemptions despite having huge profits. These companies distribute considerable dividends to shareholders but take advantage of various income tax law provisions, such as exemptions, deductions, etc., to avoid paying taxes. Such companies are basically zero-tax or minimum-tax paying companies. Given an increase in the number of such low-tax paying companies, MAT was introduced by the Finance Act in 1987, with effect from the next financial year, i.e., 1988-89. Later on, it was withdrawn by the Finance Act 1990 and then reintroduced by the Finance (No.2) Act 1996, w.e.f, 1-4-1997.
MAT – A Brief Introduction
Minimum Alternative Tax is payable under the Income Tax Act. The concept of MAT was introduced to target those companies that make huge profits and pay the dividend to their shareholders but pay no/minimal tax under the normal provisions of the Income Tax Act, by taking advantage of the various deductions, and exemptions allowed under the Act.
But with the introduction of MAT, the companies have to pay a fixed percentage of their profits as Minimum Alternate Tax. MAT is applicable to all companies, including foreign companies. MAT is calculated under Section 115JB of the Income-tax Act.
Every company should pay higher of the tax calculated under the following two provisions:
1. Tax liability as per the Normal provisions of income tax act (tax rate 30% plus 4% edu. cess plus surcharge (if applicable).
Tax liability for the domestic companies is 25% plus 4% cess and applicable surcharge, as per the normal provisions of the Income Tax Act whose turnover or gross receipts is upto Rs.400 crore.
2. Tax liability as per the MAT provisions are given in Sec 115JB (The tax rate is 15% of Book Profits plus 4% education cess plus a surcharge, if applicable, with effect from AY 2020-21 (FY 2019-20)).
MAT Applicability
According to Section 115JB of the Income Tax Act, MAT has to be remitted by a company if the tax has to be paid on the total income, which is calculated as stated in the provisions of Income-tax in any year, is less than 18.50% of its book-profit+surcharge (SC)+health and education cess. MAT is applicable to both the private and public sectors. However, MAT is not applicable in the following circumstances:
- According to Section 115JB(5A), MAT is not applicable to any income that is acquired from life insurance businesses.
- According to Section 115 V-O, MAT is not applicable to a shipping income that is responsible for tonnage taxation.
MAT is not applicable to an assessee of a foreign country who comes under any of the following categories:
- If the assessee is a resident of a country or in a specified territory with whom India has an agreement or if the Central Government has adopted an agreement under Section 90A(1), and when the assessee does not have a permanent establishment in India according to the provisions of the agreement.
- If the assessee is a resident of a country with whom India does not have an agreement as per clause (i) and if the assessee does not require registration under any law.
- Foreign companies whose total income includes profits gained from businesses as mentioned in Section 44AB, 44BB, 44BBA or 44BBB.
MAT Credit
If a company pays tax under MAT, then the company is authorized to claim MAT credits in the following years. Section 115JAA provides the provisions to carry forward and adjust MAT credit. During the calculation of Foreign Tax Credit(FTC), if the MAT amount exceeds such FTC, then such excessive amount is ignored.
Adjustment of Carried Forward MAT Credit
The MAT credit is utilized by the company in the forthcoming years. These credits can be adjusted in the year when the normal liability is more than the MAT liability. The set-off pertaining to brought forward MAT credit is permitted in the forthcoming years in accordance with the difference between the tax on total income and the provisions of MAT.
Period of Carry Forward
The MAT credit can be carried forward for a period of 15 years after which the credit undergoes a lapse. There is no interest paid to the taxpayer during such credit.
Report From Chartered Accountant
Every company that abides by the provisions of Section 115JB has to acquire a report from a chartered accountant in Form No. 29B. This form guarantees that the book profit has been calculated according to the provisions of Section 115JB. The report has to be obtained on or before the due date of filing the income return. Form no. 29B of the audit report must be filed electronically.
AMT
The non-corporate taxpayers are entitled to AMT provisions in a modified pattern. In other words, MAT is applicable for companies and AMT is applicable to individuals. The AMT provisions are specified in Sections 115JC to 115JF.
AMT Applicability
The AMT provisions are applicable to every taxpayer who has claimed the following:
- Deduction under Section 80H to 80RRB.
- Deduction under Section 35AD.
- Deduction under Section 10AA.
The AMT provisions are not applicable to a non-corporate who have not claimed the above deductions.
- The AMT provisions are applicable to an individual, Hindu undivided family, an association of people or body of individuals or to an artificial juridical person when the adjusted total income is more than Rs. 20,00,000.
- The AMT provisions are applicable to other individuals not taking their income into account.
AMT Rate
For non-corporate taxpayers, the AMT levied will be 18.05% of the adjusted total income including surcharge and cess. For non-corporate assessee, the AMT levied will be 9% when a unit is located in International Financial Services Centre gaining income in convertible foreign exchange including surcharge and cess.
AMT Credit
As per the provisions of AMT, all non-corporate taxpayers under AMT provisions have to pay a higher normal tax liability. If a taxpayer pays liability according to AMT, then the taxpayer is authorized to claim credit in the following years for the AMT paid more than the normal tax liability. For the purpose of calculation of Foreign Tax Credit(FTC), if MAT amount exceeds such FTC, then such excessive amount is ignored.
Adjustment of Carried Forward AMT Credit
The AMT credit is utilized by non-corporate taxpayers in the forthcoming years. These credits can be adjusted in the year when the normal liability is more than the AMT liability. The set-off pertaining to brought forward AMT credit is permitted in the forthcoming years in accordance with the difference between the tax on total income and the provisions of AMT.
Period of Carry Forward
The AMT credit can be carried forward for a period of 15 years after which the credit undergoes a lapse. There is no interest paid to the taxpayer during such credit.
Report from Chartered Accountant
All non-corporate taxpayers who abide by the AMT provisions are required to acquire a report from a Chartered Accountant in Form no. 29C. This has to be done before the due date of filing income tax returns
FAQs
Are MAT & AMT the Same?
NO. MAT and AMT are not the same.
The concept of MAT was introduced only for companies, but over time, it has been made applicable to all taxpayers through AMT. The primary difference between MAT and AMT is that MAT is levied on companies while AMT is levied on Individuals, HUF, AOP, BOI (whether incorporated or not ), and Artificial Judicial Persons having an Adjusted Total Income exceeding Rs 20 Lakhs.
In simpler words, MAT is applicable only on corporate taxpayers, whereas AMT is applicable to non-corporate taxpayers. AMT is applicable to every individual who has claimed deductions from Section 80H to 80RRB (excluding Section 80P) along with Section 35AD and Section 10AA.
Further, MAT is calculated on the book profit computed as per Explanation 1 to Section 115JB. AMT is calculated on the book profit computed as per the provisions of Section 28 to 43D (i.e., normal business income). The motive behind the introduction of both is same i.e. to collect the tax by the assessee or a company who are avoiding the tax despite earning a substantial profit.
Will a Company be required to pay MAT if it opts for the tax regime as per Section 115BAA or Section 115BAB?
No, provisions of MAT is not applicable to companies opting to pay tax as per Section 115BAA or Section 115BAB.