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Minimum Alternate Tax - MAT

author portrait

Maharshi Shah

Business and Profession Income
Income Tax
MAT
Minimum Alternate Tax

What is Minimum Alternate Tax or MAT?

Minimum alternate tax was launched to reduce the gap between the tax accountability as per income calculation and book profits. To better understand it, MAT was introduced to target companies that make huge profits and pay the dividends to their shareholders but pay very minimal tax under the normal provisions of the income tax act. They do this by taking advantage of the deductions and exemptions allowed under the act. Therefore, with the introduction of MAT, the companies have to pay a fixed percentage of their profits as minimum alternate tax. Also, it is calculated under section 115JB. Below are the 2 provisions under which the companies should pay higher of the tax calculated:

Calculation of MAT or Minimum Alternate Tax

MAT includes 18.5% of book profits which include surcharge and cess if they are applicable (15% from AY 2020-21). Here, book profit means the net profit as shown in the profit and loss account for the year as increased and decreased by the following:

Additions to the Net Profit if Debited to the Profit & Loss Account

Deletions to the Net Profit

Applicability of MAT

As per section 115JB, every taxpayer being a company is liable to pay MAT, if the Income tax is payable on the total income, computed as per the provisions of the income tax act in respect of any year is less than 15% of its book-profit + surcharge (SC) + health & education cess. However, the provisions of MAT are not applicable on:

Further, as per Explanation 4A to section 115JB as inserted by Finance Act, 2018, MAT provisions shall not be applicable to a foreign company, whose total income comprises profits and gains arising from a business referred to in section 44AB, 44BB, 44BBA, or 44BBB and such
income has been offered to tax at the rates specified in those sections

What is Minimum Alternate Tax Credit?

When any amount of tax is paid as minimum alternate tax by the company, it can claim the credit of such taxes paid in accordance with the provision of section 115JAA.

The allowable tax credit is the tax paid as per MAT calculation which is the income tax payable under the normal provision of the income tax act. However, no interest shall be paid on this tax credit by the department.

FAQs

When is MAT applicable?

It is applicable to all the companies including foreign companies.

What is the difference between MAT and Alternate Minimum Tax or AMT?

MAT stands for Minimum Alternate Tax and AMT stands for Alternate Minimum Tax. Initially the concept of MAT was introduced for companies and progressively it has been made applicable to all other taxpayers in the form of AMT.

Got Questions? Ask Away!

  1. Hi @sachinsp15
    The private limited company is assumed to have many tax advantages. There are some industry-specific advantages, but taxes are to be paid at a flat rate of 25% or 30 % on profits (as applicable), also Minimum Alternate Tax (MAT) applies here.

    Moreover, To pay taxes on 22% there are so many conditions u/s 115BAA which should be complied and company cannot claim so many deductions here which are generally allowed.

    Furthermore, To incorporate the company having main objective of trading you need to get an NBFC license from RBI. Also there are so many year around compliances which needs to be followed for every PLC.

    Talking about tax holiday scheme for startups, there also company needs to satisfy the eligibility criteria for claiming this benefit and also obtain certification from the Inter-Ministerial Board setup for eligible purposes of a company.

    If you can manage to pass through all those conditions, then only it would be wise to trade in F&O segment as a registered Pvt. Ltd. Company.

    Hope this helps!