What Is Mat Tax With Example

Minimum alternate tax mat minimum alternate tax is the tax paid by all the companies that come under the indirect tax category.

What is mat tax with example.

Answer ankush kumar arora. Mat is a tax levied under section 115jb of the income tax act 1961. Normally a company is liable to pay tax in accordance with the provisions of the. Many a time firms and companies avail all the benefits in tax laws and end up paying a paltry sum as tax or pay no tax at all on account of excellent tax planning.

Mat a brief introduction. The taxable income of abc company not availing any tax exemptions incentives as per the provisions of the income tax act 1961 is rs. Let us understand in detail what mat is. 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.

In the judgment echjay forgoings p ltd. Under existing rules book profit is calculated as per section 115jb of the income tax act 1961. Later it was withdrawn by the finance act 1990 but reintroduced again from 1 april 1997. Mat is applied when the taxable income calculated as per the normal provisions in the it act is found to be less than 18 5 of the book profits.

Mat is an attempt to reduce tax avoidance. Termed the minimum alternate tax mat operating with a mat credit carry forward mechanism. It is applicable to companies and firms llps. Minimum alternative tax is payable under the income tax act.

As per the concept of mat the tax liability of a company will be higher of the following two. Presently mat is applicable to companies domestic and foreign. 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. Minimum alternate tax calculation example.

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. 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. It was first introduced by the finance act 1987 and made effective from ay 1988 89. Minimum alternate tax mat meanwhile is like tax paid in advance.