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.

Mat is calculated as 15 of the book profit of the tax assesse. 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. Mat is an attempt to reduce tax avoidance. Let us understand in detail what mat is.

Presently mat is applicable to companies domestic and foreign. 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. It was first introduced by the finance act 1987 and made effective from ay 1988 89.

Normally a company is liable to pay tax in accordance with the provisions of the. 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. Termed the minimum alternate tax mat operating with a mat credit carry forward mechanism.

In the judgment echjay forgoings p ltd. Under existing rules book profit is calculated as per section 115jb of the income tax act 1961. Answer ankush kumar arora. Mat a brief introduction.

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. Mat stands for minimum alternate tax as per income tax act 1962. Minimum alternate tax mat meanwhile is like tax paid in advance. The taxable income of abc company not availing any tax exemptions incentives as per the provisions of the income tax act 1961 is rs.

Minimum alternate tax calculation example. 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. 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. Later it was withdrawn by the finance act 1990 but reintroduced again from 1 april 1997.