Minimum Alternate Tax (MAT)

What is MAT?

MAT is an indirect tax levied under the Income Tax Act of India, 1961. As per section 115JB, every foreign and domestic company is required to pay MAT, a rule set up to prevent highly profitable businesses from dodging their tax liabilities.

A large number of companies in India try to evade taxes. For instance, many “zero tax companies” generate substantial revenues but end up paying a nil tax by applying deductions, exemptions and other kinds of loopholes in the system. So, MAT was created so that no company is able to completely evade their tax liability.

MAT Applicability

Minimum Alternate Tax is only applicable to companies and not to individuals, HUFs, partnership firms, LLPs, societies, etc. Rules pertaining to Sec 115JA is applicable on the foreign companies that generate profits through their running business activities in India.

How to calculate the MAT?

Minimum Alternate Tax is equal to 18.5% (15% from AY 2020-21) of Book profits (Plus Surcharge and cess as applicable). Book profit means the net profit as shown in the profit & loss account for the year as addition and deletion by the following items:

Book Profit

The manner of computation of Book Profit is explained under section 115JB of the Act which specifies additions and deductions of specified items from the net profit of the company computed in accordance with the provisions of the Companies Act, 2013. Here is a list of the items which are allowed to be added and deducted from the net profit of the company:

Additions:

• a) Income Tax paid or payable (including provision) thereof;
• b) Amounts transferred to any reserve;
• c) Provisions made for meeting liabilities (other than ascertained liabilities);
• d) Provision for losses of subsidiary companies;
• e) Dividend paid or proposed;
• f) Expenditure relating to incomes exempt under section 10 other than section 10(38);
• g) Deferred tax;
• h) Expenditure relating to income by way of royalty of patent taxable under section 115BBF

Deductions:

i) Amount withdrawn from reserves/provisions where such amount is credited to the profit and loss account; j) Income under section 10 other than section 10(38) where such amount is credited to statement of profit and loss; k) Brought forward loss or unabsorbed depreciation, whichever is less as per books of account; l) Profit of sick industrial company; m) Income as a share in the income of AOP/BOI; n) Income by way of royalty in respect of patent chargeable to tax under section 115BBF

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