Minimum Alternate Tax

Minimum Alternate Tax (MAT) for Companies & LLPs

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Minimum Alternate Tax (MAT) for Companies & LLPs

Minimum Alternate Tax was introduced to charge tax on zero tax companies. Minimum Alternate Tax is applicable for all companies (Private Limited Company, One Person Company, Limited Company, Nidhi Company, etc.,). Similarly, The Finance Act, 2012 has also introduced the concept of Alternate Minimum Tax (AMT) to Limited Liability Partnerships (LLPs) from the accounting year 2012-2013. In this article, we look at Minimum Alternate Tax (MAT) for Companies.

Zero Tax Companies

Zero Tax Companies are companies reporting profits in book of account and also paying out dividends, nevertheless, not paying income tax or paying very marginal income tax due to availment of  of various incentives and schemes. To prevent such companies from not paying income tax while earning profits, the Government introduced the concept of Minimum Alternate Tax or MAT. 

Minimum Alternate Tax (MAT)

Minimum Alternate Tax was introduced by Finance Act, 2000 provides for the levy of a minimum tax on book profits at 18.5%. Minimum alternate tax is applicable for all companies except for companies involved in the life insurance business.

MAT is considered payable only if tax applicable as per normal provisions of the Act is lesser than 18.5% of ‘book profits’.

MAT Credit

Tax paid as Minimum Alternate Tax is however eligible for MAT credit. MAT credit can be carried forward for a period of ten years succeeding the year in which MAT credit becomes allowable i.e. from the year when tax becomes payable under the normal provisions of Act.

The MAT credit allowable for a certain year is calculated as the difference between tax computed as per normal provisions of Act and Minimum Alternate Tax (MAT) that is payable with reference to book profits of that particular financial year. Hence, balance MAT credit allowable shall be carried forward to subsequent or next financial year.

The interest under section 234A / 234B is charged after MAT credit allowable is set off against tax payable. Consequently, MAT credit provisions guarantee that the company will pay a minimum tax.

Form 29B – Minimum Alternate Tax (MAT)

Companies availing MAT provisions are required to furnish a report from Chartered Accountant in Form 29B to confirm book profits are computed according to Sec.115JB. Though most companies obtain the report in the normal course of filing of income tax return, filing of Form 29B is highly recommended while availing MAT provisions or MAT credit.

Click here to download Form29B – MAT

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