Provisions of MAT (Minimum Alternate Tax) Under Section 115JB

Section 115JB ensures that companies with substantial book profits but low or no taxable income (due to exemptions/deductions) pay a minimum tax. Below is a detailed breakdown of its key provisions:

1. Objective of MAT

• Prevents tax avoidanceby “zero-tax companies” that report high profits but pay little/no tax due to exemptions.
• Ensures equitable taxationby mandating a minimum tax contribution from profitable companies.

2. Applicability of MAT

(A)  Who Must Pay MAT?

• All domestic companies(public/private, Indian/foreign).
• Foreign companies(unless exempt under tax treaties or specific exclusions).

(B)  Exemptions from MAT

1. Life insurance companies(Section 115JB(5A)).
2. Shipping companiesunder tonnage tax (Section 115V-O).
3. IFSC units(taxed at 9% instead of 15%).
4. Companies opting for concessional tax regimes(e.g., Section 115BAA/115BAB).
5. Certain foreign companieswithout a Permanent Establishment (PE) in India.

3. Calculation of MAT

(A)  MAT Rate

• Standard rate: 15%of book profit (plus surcharge & cess).
• IFSC units: 9%(if income is in convertible foreign exchange).

(B)  Book Profit Computation

Book profit is derived from net profit (as per Schedule III, Companies Act 2013) with adjustments:

Additions to Net Profit

• Income tax paid/provided.
• Dividends paid/proposed.
• Depreciation (including revalued assets).
• Provisions for unascertained liabilities.
• Expenditure related to exempt income(e.g., Section 10).

Deductions from Net Profit

• Exempt income(e.g., LTCG under Section 10(38)).
• Withdrawals from reserves(if credited to P&L).
• Unabsorbed depreciation/losses(for insolvent companies).

Example:

• Net profit = ₹10 lakh
• Additions (tax + dividends) = ₹3 lakh
• Deductions (exempt income) = ₹1 lakh
• Book profit= ₹10L + ₹3L – ₹1L = ₹12 lakh
• MAT= 15% of ₹12L = ₹1.8 lakh (+ surcharge & cess).

4. MAT Credit (Section 115JAA)

• Carry Forward: Excess MAT paid (over normal tax) can be carried forward for 15 years.
• Utilization: Adjusted against future regular tax liability(when normal tax > MAT).

Example:

• Year 1: MAT paid = ₹2L, Normal tax = ₹1L → MAT credit= ₹1L.
• Year 2: Normal tax = ₹3L, MAT = ₹2L → Use ₹1L credit→ Final tax = ₹2L.

5. Judicial Precedents & Key Cases

• Tata Power vs. IT Dept.: Delhi HC upheld exclusions in book profit computation.
• Bank of Baroda Case: ITAT ruled MAT inapplicableto certain public sector banks.

6. Compliance & Penalties

• Tax Audit: Mandatory if book profits trigger MAT.
• Late Payment: Interest under Section 234B/C