Under Explanation 1(iii) to Section 115JB(2), companies can deduct the lower of:
- Brought forward losses(as per books), or
- Unabsorbed depreciation(as per books)
from the net profit while computing book profit for MAT (Minimum Alternate Tax).
1. What Qualifies for Deduction?
- Only losses/depreciation recorded in the books(not as per Income Tax Act).
- Lossesmust be carried forward in the balance sheet.
- Unabsorbed depreciationmust be not adjusted in previous years.
2. How Much Can Be Deducted?
- Lower of the two amounts:
- Brought forward losses(as per books), or
- Unabsorbed depreciation(as per books).
Example:
- Brought forward loss (books) = ₹50 lakh
- Unabsorbed depreciation (books) = ₹30 lakh
- Deductible amount= ₹30 lakh (lower of the two).
3. Conditions & Restrictions
✔ Must be recorded in books: Losses/depreciation not reflected in financial statements cannot be deducted.
❌ No double deduction: If losses/depreciation are already adjusted in P&L, they cannot be deducted again.
❌ No deduction for tax losses: Only book losses are considered, not losses as per Income Tax Act.
Practical Example
| Particulars | Amount (₹) |
| Net Profit as per P&L | 1,00,00,000 |
| Additions (Tax, Dividends, etc.) | 20,00,000 |
| Brought Forward Loss (Books) | 50,00,000 |
| Unabsorbed Depreciation (Books) | 30,00,000 |
| Deduction Allowed (Lower of the two) | (30,00,000) |
| Book Profit for MAT | 90,00,000 |
| MAT @15% | 13,50,000 |
