1. Purpose of Section 115JAA
- Allows companies to claim creditfor excess MAT paid (when MAT > normal tax) in subsequent years where normal tax liability exceeds MAT.
- Prevents double taxation and ensures fairness for companies subject to MAT.
2. Eligibility for MAT Credit
- Applies only if:
- Company has paid MAT under Section 115JBin any previous year.
- Normal tax liability(under regular provisions) in a later year exceeds MAT liability for that year.
3. How MAT Credit Works
(A) Calculation of MAT Credit
- MAT Credit= MAT paid in earlier years minus normal tax payable for those years.
- Example:
- Year 1: MAT = ₹20L, Normal Tax = ₹15L → Excess MAT (Credit)= ₹5L.
- Year 2: Normal Tax = ₹25L, MAT = ₹18L → Credit Utilized= ₹7L (but limited to ₹5L available).
(B) Carry Forward & Utilization Rules
✔ Carry Forward Period: 15 assessment years (unused credit lapses after this).
✔ Set-Off Order: Oldest credits are used first (FIFO method).
✔ No Refund: Excess credit cannot be refunded—only adjusted against future tax.
4. Conditions & Restrictions
❌ No Credit if:
- Company opts for concessional tax regime (Section 115BAA/115BAB).
- MAT was paid by a foreign company without PE in India.
✔ Credit Allowed Even if:
- Company changes business(unless dissolved).
5. Practical Example
| YEAR | BOOK PROFIT | MAT @15% | NORMAL TAX | EXCESS MAT (CREDIT GENERATED) | CREDIT UTILIZED |
| 2022-23 | ₹1 Cr | ₹15L | ₹10L | ₹5L | – |
| 2023-24 | ₹1.2 Cr | ₹18L | ₹22L | – | ₹5L (Full credit used) |
| 2024-25 | ₹1.5 Cr | ₹22.5L | ₹20L | ₹2.5L | – |
Net Result:
- 2023-24: Reduced tax outgo from ₹22L to ₹17L(after ₹5L credit).
- 2024-25: ₹2.5L credit carried forward.
6. Compliance Requirements
- Disclosure in ITR: MAT credit details must be reported in Form 3CD(Tax Audit Report).
- Maintain Records: Companies must document MAT computations for 7 years.
7. Recent Updates (2024)
- No changesto Section 115JAA in Finance Act 2024.
- CBDT Clarification: Credit remains valid even if company merges(subject to conditions).
