Minimum Alternate Tax – MAT

tax
Minimum Alternate Tax

Zero Tax Company

The company that have generation income during the year but have reduced its tax liability to nil or negligible by taking advantage of various tax laws (concessions, incentives etc) is called Zero tax company.

What is MAT?

MAT stands for Minimum Alternate Tax. The objective to MAT is to bring into tax ambit “Zero Tax Companies” who do not pay any tax.

As per definition of MAT, the tax liability of company will be higher of the following:

  • Income tax of company computed as per normal provision of income tax.
  • Tax computed at 18.5% on book profit plus surcharge and cess as applicable.

The MAT is governed by provisions contained in section 115JB of Income Tax Act, 1961.
Book Profit means net profit as shown in the P & L Account.

Applicable on?

MAT is applicable to all companies including foreign companies.

Examples

  • Suppose tax income of company as per normal provisions of income tax law is 1000000 and booked profit is 2000000.
    Normal Tax (at 30% tax rate) = 30% of 1000000 = Rs. 300000
    MAT (at 18.5% ignoring any cess) = 18.5% of 2000000 = Rs. 370000
    Tax liability of company = Rs. 370000
  • Suppose tax income of company as per normal provisions of income tax law is 2000000 and booked profit is 1500000.
    Normal Tax (at 30% tax rate) = 30% of 2000000 = Rs. 600000
    MAT (at 18.5% ignoring any cess) = 18.5% of 1500000 = Rs. 277500
    Tax liability of company = Rs. 600000

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Read next article: Dividend Distribution Tax – DDT ››

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