Mat provisions proposed to be modified considering the impact of ind as section 115jb section 115jb the act is proposed to be amended by introducing subsections 2a to 2c in the section 115jb in order to rationalize the computation of book profits considering the impact of ind as on financial statements. Key differences between accounting profit and taxable profit. Calculation of book profits for the purpose of mat. May 31, 2008 provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of april, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by. However income tax act does not allow full amount of partners salary as expense. Therefore, it has to be added back to the book profit while computing mat. The financial profit of the business is known as accounting profit while the profit which is taxable is known as taxable profit. Calculation of book profits for the purpose of matmaximum alternate tax section 115jb for computation of book profit, one may proceed as follows. Exempt capital gains are to be excluded while computing.
In 2001, the mat provisions were again modified so that the comparison would now be between 7. The tribunal held that since the said gains do not fall under the definition of income and does not enter into the computation provisions at all, there is no question of including the same in the book profits under section 115jb of the incometax act, 1961 the act. Calculation of book profits for the purpose of mat maximum alternate tax section 115jb for computation of book profit, one may proceed as follows. The period of carry forward for the credit was kept at 5 years. The tax computed by applying 15% plus surcharge and cess as applicable on book profit is called mat. Jul 25, 2017 clarifications with faqs on computation of book profit for the purposes of levy of minimum alternate tax mat under section 115jb of the incometax act, 1961 f. As per explanation 1 to section 115jb2 book profit for the purposes of section 115jb means net profit as shown in the statement of profit and loss prepared in accordance with schedule iii to the companies act, 20 as increased and decreased by certain items prescribed in this regard. Faqmat book profit computation for ind as compliant companies.
Government of india ministry of finance department of revenue central board of direct taxes. In other words, the mat provisions in section 115jb create a deeming fiction, which deems book profit as the total income of a company for determining its. Minimum alternate tax part iii computation of book profits. Jul 26, 2017 framework for computation of book profit for the purposes of levy of mat under section 115jb of the incometax act, 1961 for indian accounting standards ind as compliant companies may 03, 2016.
What is minimum alternate tax mat the concept of mat was introduced under income tax act to tax companies making high profits and declare dividends to their shareholders but have no significant taxable income because of exemptions, deductions and incentives. Calculation of book profits for the purpose of mat section. May, 2009 the tribunal held that the liability was ascertained one and it was deductible from profits as debited in profit and loss account and the a. Capital receipts and book profits mat no longer a self. This means long term capital gain exemption under section 1038 are. Framework for computation of book profit for the purpose. Minimum alternate tax part v computation of book profits. Calculation of book profits for the purpose of mat section 115jb. Apr 28, 2016 government of india ministry of finance department of revenue central board of direct taxes. Cbdt issues faqs on computation of book profit for levy of. Minimum alternative tax mat and computation of book profits. For mat calculation, the starting point is the net profit as per the statement of profit and loss before considering any items forming a part of oci. Clarifications on computation of book profit of minimum alternate tax mat for ind as compliant companies.
Where in the case of a company, the incometax payable on the total income as computed under the incometax act, is less than15% of its book profit, such book. Book profits as per 115 jb xxxx 10 % of the book profits xxxx surcharge xxxx education cess xxxx total tax liability xxxx kindly note that except these adjustments nothing to be considered for mat calculation. For computation of book profit, one may proceed as follows. Capital receipts and book profits mat no longer a selfcontained code. Mat provisions us 115jb an exhaustive overview of landmark. Whether the profit arising on transfer of development rights to the fully owned subsidiary company is required to be included in the book profit under section 115jb of the income tax act, 1961the act. Since mtm gains recognised through profit or loss on fvtpl classified financial instruments are included in book profits for mat computation, it is clarified that mtm losses on such instruments recognised through profit or loss shall not require any adjustments as provided under clause i of explanation 1 to section 115jb2 of the act. Book profit us 115jb to be reduced by exempted capital gain q. When any amount of tax is paid as mat by an assessee being a company, then, credit in respect of tax so paid shall be allowed to him in accordance with the provision of section 115jaa. Faq on mat computation for ind as compliant companies. Book profit under income tax act in the context of mat. Understanding the concept of liability to pay minimum alternate taxmat and alternate minimum tax amt and various provisions like book profit, dividends paid or proposed, depreciation, deferred tax, income of foreign company, etc. Admin ca, ca final, ca ipcc, corporate, direct tax, income tax 08042017. Calculation of book profits for the purpose of matmaximum alternate tax section 115jb.
Framework for computation of book profit for the purposes of levy of mat under section 115jb of the incometax act, 1961 for indian accounting standards ind as compliant companies may 03, 2016. Allowable tax credit difference of mat paid and income tax payable under normal provision of income tax act, 1961. As per section 115jb 2, book profit means net profit in the statement of profit and. The objective of introduction of mat is to bring into the tax net zero tax companies which in spite of having earned substantial book profits and having paid handsome dividends, do not pay any tax due to various tax concessions and incentives provided under the incometax law. Easing the mat credit mechanism and simplifying the mat computation provisions on the lines suggested in this paper would help rationalise. Where in case of a company, the income tax payable on the total income as computed under the income tax act in respect of any previous year is less than 18. Gujarat organics ltd, mumbai vs assessee indian kanoon. Clarifications with faqs on computation of book profit for the purposes of levy of minimum alternate tax mat under section 115jb of the incometax act, 1961 f. Minimum alternative tax mat and its computation of book profit and. Computation is any type of calculation that includes both arithmetical and nonarithmetical steps and follows a welldefined model, for example an algorithm the study of computation is paramount hypernymous to the discipline of computer science. If you pick pat from the profit and loss ac then only you will be required to make adjustment for tax. Aug 29, 2016 advanced understanding minimum alternate tax concepts computation of book profits in most easiest manner by mr. Further the high court observed that the tribunal has the power to entertain the claim of.
Jun 20, 2007 therefore, it has to be added back to the book profit while computing mat. The curious case of mat computation for ind as companies. Further, the definition of book profit is exhaustive. Advanced understanding minimum alternate tax concepts computation of book profits in most easiest manner by mr. It also ruled to the effect that any difficulty in computation of book profits for mat purposes for foreign companies cannot be a reason to say that the provisions of mat do not apply to such companies. Government subsidies for capital investment in backward areas. Considering that the book profit based on ind as compliant financial statement is likely to be different from the book profit based on existing indian gaap, the central board of direct taxes cbdt constituted a committee in june, 2015 for suggesting the framework for computation of mat liability under section 115jb for ind as compliant. One such recent controversy discussed in this article revolves around the inclusion or otherwise of capital receipts in the book profits. Profit which has been made but not yet realized through a transaction, such as a stock which has risen in value but is still being held. Understanding the concept of liability to pay minimum alternate tax mat and alternate minimum tax amt and various provisions like book profit, dividends paid or proposed, depreciation, deferred tax, income of foreign company, etc. Cbdt notifies rules for computation of interest income.
As the profit and loss account is subject to notes and qualifications thereon, the profit shown in the profit and loss account may have to be adjusted with the. However, the assessee contended that the explanation a of section 115ja of the act is not relevant, since it has not claimed any deduction out of the book profit. No 3232015tpl government of india ministry of finance department of revenue central board of direct taxes tpl division dated 25th july, 2017. Exempt capital gains are to be excluded while computing book. Jan 14, 2011 provisions of mat for payment of tax by certain companies section 115jb tax payable for any assessment year cannot he less than 15% of book profit. Cs professionalcomputation of book profit from mat on. In coming to this conclusions, the aar also noted the amendment made by the finance act, 2012 spelt out specifically that certain companies. After extensive research, the author makes out a strong case to contend that exempt income was never intended to fall within the concept of book profits in s. Minimum alternate tax mat us 115jb of income tax act, 1961. The minimum alternate tax mat on companies challenges. Clarifications on computation of book profit for the purposes. Mat book profit one stop solution for gst, income tax.
Provisions of mat for payment of tax by certain companies section 115jb tax payable for any assessment year cannot he less than 15% of book profit. The minimum alternate tax mat on companies challenges and. Aug 20, 2015 book profit us 115jb to be reduced by exempted capital gain q. Accounting standards reporting period as defined in ind as 101. It requires that every company shall pay tax on its book profits arrived by preparing its accounts as per schedule iii to companies act 20 part ii of schedule vi to companies act 1956 earlier, subject to adjustments as provided under explanation 1 thereunder. Book profit how to determine section 115jb analysing computation of total income and book profit.
While calculating book profits under section 115jb of income tax act for. Sep 14, 2015 calculation salary to partners and book profit section 40b 6 0 raj kumari monday, september 14, 2015 edit this post in all most all the partnership agreements,provision for salary is included and amount of partner remuneration is decided with mutual consent. Mat is levied at the rate of 9% plus surcharge and cess as applicable in case of a company. Clarifications on computation of book profit for the. Nonapplicability of mat to fiis opening pandoras box. Framework for computation of book profit for the purpose of.
Mat book profit computation 115jb for ind as compliant. Mat computation formulae for ind as compliant companies. It has been recommended that these items should be included in the book profits for mat purposes at an appropriate point of time. Under mat, such companies are made liable to pay to the government, by deeming a certain percentage of their book. Faqs on computation of book profit to levy mat for ind as.
May 21, 2012 book profit simply means profit as computed in accordance with the provisions but before remuneration paid to partner. However, the mat provisions, although seemingly simple and exhaustive, have always been a subject of controversies and litigation. Book profit us 115jb to be reduced by exempted capital gain. Ddt as it must be added to book profit while computing mat. Book profit simply means profit as computed in accordance with the provisions but before remuneration paid to partner.
In detail included the following note facts the taxpayer 1, an indian company, was engaged in the business of building and developing properties. Broadly speaking book profit in context of mat means profit as shown in the profit and loss account adjusted by additions and deductions as provided in respective sections that is section115j, section115ja and section 115jb. Get indias best faculty video classes for best study at home. A mat computation in the first year of adoption of ind as the phase i companies are adopting ind as during the current financial year ending 31 march 2017 with comparative year 31 march 2016 and transition date of 1 april 2015. Minimum alternate taxsection 115jbhow to compute arthikdisha. The difference between accounting profit and taxable profit can be drawn clearly on the following grounds. The mat provisions begin with a nonobstante clause, and thus, are a sacrosanct and selfcontained code. Book profit definition, examples how to calculate book. Framework for computation of book profit for the purposes of levy of mat under section 115jb of the incometax act, 1961 for indian accounting standards ind as compliant companies. Difference between accounting profit and taxable profit. Calculation of mat credit applicability of minimum alternate tax. Mat is applicable to all companies including the foreign companies analysis of provision of section 115jb.
Calculation salary to partners and book profit section 40b. Minimum alternate tax mat is a tax effectively introduced in india by the finance act of 1987, vide section 115j of the income tax act, 1961 it act, to facilitate the taxation of zero tax companies i. The finance act, 2017 defined a new term transition amount as. In other words, the mat provisions in section 115jb create a deeming fiction, which deems book profit as the total income of a company for determining its tax liability. Computation of book profits would be calculated as under a stepi. Cbdt clarifies on computation of book profit for the purposes. Cbdt issues faqs on computation of book profit for levy of mat and. Step 1 find out net profit before other comprehensive income oci as per statement of profit and loss of the company. Cbdt clarifies on computation of book profit for the. Below is an illustrative list of such items along with the recommended treatment of mat sr no.