1. Tax Payable for any Assessment Year Cannot be Less than 18.5% of Book Profit:
Where in the case of a company, the income-lax payable on the total income as computed under the Income-tax Act, in respect of previous year relevant to the assessment year 2012-13 or thereafter is less than 18.5% of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income (book profit) shall be the amount of the income-tax at the rate of 18.5%.
Thus in case of a company income tax payable shall be higher of the following two amounts:
(1) Tax on total income computed as per the normal provisions of the Act by charging applicable normal rates and special rates if any income included in the total income of the company is taxable at special rates.
(2) 18.5% of Book Profit
The following proviso has been inserted under Section 115JB (1) – Amendment by the Taxation Law Act, 2019.
“Provided that for the previous year relevant to the assessment year commencing on or after the 1St. day of April, 2020, the provisions of section 115JB (1) shall have effect as if for the words “18.5%”, the words “15%” had been substituted.”
2. [Section 115JB (7)]- MAT Rate to be 9% instead of 15% in case of a Unit Located in an International Financial Services Center
Notwithstanding anything contained in section 115JB (1), where the assessee referred to therein, is a unit located in an International Financial Services Center and derives its income solely in convertible foreign exchange, the provisions of section 115JB (1) shall have the effect as if for the words “15%” wherever occurring in that sub-section, the words “9%” had been substituted.
3. Provisions of Section 115JB not to apply in certain Cases .
The provisions of section 115JB shall not apply in case of the following:
1. Any income accruing or arising to a company from life insurance business referred to in section 115B [Section 115JB(5A)].
Section 115JB (5A) Amended :
The above sub-section (5A) has been substituted by the following:
“(5A) The provisions of this section shall not apply to —
(i) Any income accruing or arising to a company from life insurance business referred to in section 115B ;
(ii) A person who has exercised the option referred to under section 115BAA or Section 115BAB”
2. A foreign company, if—
(i) the assessee is a resident of a country or a specified territory with which India has an agreement referred to in section 90(1) or the Central Government has adopted any agreement under section 90(1) and
the assessee does not have a permanent establishment in India in accordance with the provisions of such agreement: or
(ii) the assessee is a resident of a country with which India does not have an agreement of the nature referred to in clause (i) and the assessee is not required to seek registration under any law for the time being in force relating to companies.
3. MAT provisions not to apply to certain foreign companies [Explanation 4A]
For the removal of doubts, it is hereby clarified that the provisions of this section shall not be applicable and shall be deemed never to have been applicable to an assessee, being a foreign company, where its total income comprises solely of profits and gains from business referred to in section 44B or section 44BB or section 44BBA or section 44BBB and such income has been offered to tax at the rates specified in those sections.
4. [Section 115JAA]- Allowing MAT Credit in respect of Tax paid on deemed income under MAT provisions against Tax Liability in subsequent Years
Section 115JAA provides that where any amount of tax is paid under section 115JB (1) by a company for any assessment year beginning on or after 1.4.2006, credit in respect of the taxes so paid for such assessment year shall be allowed on the difference of the tax paid under section 115JB and the amount of tax payable by the company on its total income computed in accordance with the other provisions of the Act.
In other words, MAT credit shall be computed as under:
MAT credit available = Tax paid under section 115JB — Tax payable on the total income under normal provisions of the Act.
However, no interest shall be allowed on the amount of tax credit available under Section 115JAA. [First Proviso to section 115JAA]
Further, where the amount of tax credit in respect of any income-tax paid in any country or specified territory outside India, under Section 90 or Section 90A or Section 91, allowed against the tax payable under the provisions of sub-section (1) of section 115JB exceeds the amount of such tax credit admissible against the tax payable by the assessee on its income in accordance with the other provisions of this Act, then, while computing the amount of credit under this sub-section, such excess amount shall be ignored. [ Second proviso to section 115JAA]
The amount of tax credit so determined shall be allowed to be carried forward and set off in a year when the tax becomes payable on the total income computed under the regular provisions.
However, no carry forward shall be allowed beyond the 15th assessment year immediately succeeding the assessment year in which the tax credit becomes allowable. The set off in respect of the brought forward tax credit shall be allowed for any assessment year to the extent of the difference between the tax on the total income and the tax which would have been payable under section 115JB for that assessment year. No credit will be allowed in respect of MAT paid in any assessment year prior to 2006-07.
In other words. MAT credit will be allowed only in that previous year in which tax payable on the total income as per normal provisions of the income tax Act is more than tax payable under Section 115JB and it shall be allowed to the extent of the following:
Tax payable on total income under the normal provisions of the Act — tax payable under Section 115JB = MAT credit to be allowed.
Amendment of Section 115JAA relating to allowability of brought forward MAT Credit [w.e.f. A.Y. 2020-21]
The provisions of section 115JAA (relating to allowability of brought forward MAT credit) shall not apply to a person who has exercised the option U/s 115BAA.
Where a Private Company or Unlisted Public Company is converted into Limited Liability Partnership in any previous year, the MAT Credit which was available to the company shall lapse. In other words, the Tax Credit U/s 115JAA shall not be allowed to the successor LLP.