What Is Mat Tax With Example

The concept of mat was introduced to target those companies that make huge profits and pay the dividend to their shareholders but pay no minimal tax under the normal provisions of the income tax act by taking advantage of the various deductions and exemptions allowed under the act.

What is mat tax with example.

It was introduced to contain the practices followed by certain companies to avoid the payment of income tax even though they had the ability to pay. Minimum alternate tax mat minimum alternate tax is the tax paid by all the companies that come under the indirect tax category. Mat stands for minimum alternate tax as per income tax act 1962. If the sum is debited to the profit and loss a c under the provisions of companies act it will not be added to compute book profit even if the same is disallowed under the income tax act.

As per the concept of mat the tax liability of a company will be higher of the following two. The taxable income of abc company not availing any tax exemptions incentives as per the provisions of the income tax act 1961 is rs. Mat is calculated as 15 of the book profit of the tax assesse. Minimum alternate tax mat meanwhile is like tax paid in advance.

Presently mat is applicable to companies domestic and foreign. Mat is a tax levied under section 115jb of the income tax act 1961. This allows a company to carry forward the excess tax it pays because of mat as against its regular tax liability in a particular year to be utilised in a future year as a credit against its regular tax liability. Later it was withdrawn by the finance act 1990 but reintroduced again from 1 april 1997.

Under existing rules book profit is calculated as per section 115jb of the income tax act 1961. It is applicable to companies and firms llps. This tax came into play to ensure that none of the taxpayers with a good amount of income get to avoid tax liability due to any exclusions. Normally a company is liable to pay tax in accordance with the provisions of the.

Mat is an attempt to reduce tax avoidance. In the judgment echjay forgoings p ltd. Let us understand in detail what mat is. It was first introduced by the finance act 1987 and made effective from ay 1988 89.

Minimum alternative tax is payable under the income tax act. Termed the minimum alternate tax mat operating with a mat credit carry forward mechanism. Mat a brief introduction. Minimum alternate tax calculation example.