Based on the matching principle of accountancy, only expenses debited to the profit and loss account that had direct and proximate nexus with the exempt income credited to the profit and loss account should have been added back while computing book profit under mat provisions. Step 2 adjustment to net profit to convert it into book profit which are given under explanation 1 to section 115jb 2 book profit is arrived at after making specified adjustments to the profit as shown in the statement. Cbdt clarifies on computation of book profit for the purposes. The minimum alternate tax mat on companies challenges and.
Calculation of mat credit applicability of minimum. Mat provisions us 115jb an exhaustive overview of landmark. Capital receipts and book profits mat no longer a self. Similarly for computing book profits us 115jb of the act, the ao added rs. Central board of direct taxes cbdt constituted mat ind as committee to suggest framework for computation of book profit for purposes of levy of minimum alternate tax mat under section 115jb of the incometax act, 1961 for indian accounting standards ind as compliant companies in the year of adoption and thereafter. In other words, the mat provisions in section 115jb create a deeming fiction, which deems book profit as the total income of a company for determining its tax liability. Aug 20, 2015 a it has clearly stated in the notes forming part of accounts that the said profit is not includible for computing book profit us 115jb of the act, even though it is credited to profit and loss account. Calculation of book profits for the purpose of matmaximum alternate tax section 115jb for computation of book profit, one may proceed as follows. Book profit us 115jb to be reduced by exempted capital gain. Minimum alternative tax mat and computation of book profits. May 24, 2016 the provisions of section 115jb provide for levy of mat on basis of book profits, i. Minimum alternative tax mat and its computation of book profit and mat credit under section 115jb of income tax act, 1961. On 1 february 2017, the finance minister presented the finance bill, 2017 the bill which contained a number of. To compute book profit, on should take profit and loss account and make additions and deletions.
Advanced understanding minimum alternate tax concepts computation of book profits in most easiest manner by mr. Cbdt amends the report on computation of book profits for ind. While computing the book profit under section 115jb, the assessee had not added back rs. It held that itis amount credited to the profit and loss account that should be included. Calculation of book profits for the purpose of mat section 115jb. Mat book profit computation 115jb for ind as compliant. The minimum alternate tax mat on companies challenges. Book profit is defined in section 115jb of the act. Cbdt clarifies on computation of book profit for the. Minimum alternate tax and alternate minimum tax 115jb and. Mat book profit computation 115jb for ind as compliant companies.
Profit as per profit and loss account in the current year. Computation of book profits would be calculated as under a stepi. The provisions of section 115jb provide for levy of mat on basis of book profits, i. Further, the assessee by way of a note in the computation gave a caveat that the amount of rs. Step 1 find out net profit before other comprehensive income oci as per statement of profit and loss of the company. Computation of mat step procedure 1 compute total income under income tax act, 1961. Central board of direct taxes cbdt constituted mat ind as committee to suggest framework for computation of book profit for purposes of levy of minimum alternate tax mat under section 115jb of the incometax act, 1961 for indian accounting standards ind as compliant companies in the year of adoption and thereafter the following are brief extracts. First of all calculate tax as per normal provisions of income tax. In book profit computation, long term capital gains as computed after claiming indexed cost was sought to be included under bracketed portion ofclause iiofexplanation1to section 115jb.
On 1 february 2017, the finance minister presented. Ltd on the controversial issue whether the disallowance us 14a and rule 8d is required to be adjusted while computing the book profits us 115jb and explained its nuances in the light of the judgement of the bombay high court in cit vs. On the other hand in six assessment cases, itd did not add. Nov 05, 2015 similarly for computing book profits us 115jb of the act, the ao added rs. The refund of sales tax subsidy was routed through the profit and loss account and hence, the same was considered as part of the book profits under section 115jb of the i. The mat provisions begin with a nonobstante clause, and thus, are a sacrosanct and selfcontained code. Income tax 932020 mat computation of book profit us 115jb doubtful debts since, we have held that provision of doubtful debts is not an allowable deduction while computing income under normal provisions, as a corollary to the aforesaid findings the book profits under section 115jb are not required to be reduced. Book profit under section 115jb the purpose of computing. Mat computation of book profit us 115jb doubtful debts since, we. Calculation of book profits for the purpose of matmaximum alternate tax section 115jb. Sales tax subsidy being capital receipt, the same is not taxable under the mat provisions and accordingly, the issue was raised before the tribunal. Mat provisions require book profit to be adjusted against lower of brought forward unabsorbed loss and unabsorbed depreciation and.
If the assessee has not debited any actual expenditure relating to the earning of the exempt income, therefore, the provisions of section 14a cannot be imported into the computation of book profit under section 115jb of the income tax act, 1961. As per section 115jb of the income tax act, if for any previous year for a company the tax payable on the total income as calculated on the basis of the income tax act, falls below 18. Though the above said profit was shown in the profit and loss account, yet the assessee excluded the same while computing the book profit under section 115jb of the act, by placing reliance on the decision rendered by the coordinate bench of cochin tribunal in the case of harrisons malayalam ltd. Computation of book profits by ind as compliant companies for.
Calculation of mat credit applicability of minimum alternate tax. Our comments the issue of whether exempt capital gains credited to the profit and loss account can be excluded while computing book profits under the provisions of mat has. It requires that every company shall pay tax on its book profits arrived by preparing its accounts as per schedule iii to companies act 20 part ii of schedule vi to companies act 1956 earlier, subject to adjustments as provided under explanation 1 thereunder. Capital gains exempt under section 54ec need not be. Jan 14, 2011 provisions of mat for payment of tax by certain companies section 115jb tax payable for any assessment year cannot he less than 15% of book profit. Meaning of book profit as per explanation 1 to section 115jb2 book profit for the purposes of section 115jb means net profit as shown in the statement of profit and loss prepared in accordance with schedule iii to the companies act, 20 as increased and decreased by certain items prescribed in this regard. Aug 29, 2016 advanced understanding minimum alternate tax concepts computation of book profits in most easiest manner by mr. Section 115jb minimum alternate tax income tax judgements. Calculation of book profits for the purpose of mat. Faqmat book profit computation for ind as compliant companies. Nov 20, 2012 while computation of book profit for mat calculation under sec 115jb do we have to include the income exempted under sec 10aa among the deductions from net profit as per schedule vi income tax tax queries.
Income tax computed as per provision of section 115jb of income tax act. Where in the case of a company, the incometax payable on the total income as computed under the incometax act, is less than15% of its book profit, such book. Clarifications on computation of book profit for the purpose of levy of mat under section 115jb of the incometax act for ind as compliant companies. Capital receipt waiver of loan not chargeable to tax u. The minimum alternate tax mat on companies challenges and way forward 09. No marginal relief, since the income does not exceed. The matter was considered by the board and the following clarifications are issued. As per section 115jb 2, book profit means net profit in the statement of profit. Rsm india is a member of the rsm network and trades as. Capital gains, exempt under section 54ec, could not be reckoned for purpose of computing book profit under section 115ja. Mat provisions require book profit off to the lower number. Tax liability as per the mat provisions are given in sec 115jb18. Additionally, to have parity between the transition adjustment and ongoing adjustments on account of items adjusted to other equity, the committee has recommended amendment to section 115jb2a of the incometax act the act w.
Income tax 932020 mat computation of book profit us 115jb doubtful debts since, we have held that provision of doubtful debts is not an allowable deduction while computing income under normal provisions, as a corollary to the aforesaid findings the book profits under section 115jb are not required. May 21, 2012 book profit simply means profit as computed in accordance with the provisions but before remuneration paid to partner. Yes, as per the amemndments made by finance act,2011, mat is now required to by paid on income exempt us 1038 and income decuctible us 10aa. Exempt capital gains are to be excluded while computing. Itd on one hand reduced excess depreciation pertaining to earlier years due to change in method of depreciation credited to the profit and loss account in computation of book profitin eight assessment cases. As per ind as, the amount of proposed dividend including dividend distribution taxes is required to be recognized in the year in which it has been declared rather than the year for which it pertains to. Complexity in computing the book profit under mat provisions. Net profits before oci to be considered as the broad starting point for computation of book profit. R submitted that, since the assessee before the special bench did not comment about such inclusion in the notes of accounts, but claimed deduction only at the time of computing book profit us 115jb of the act, the special bench took the view that the assessee, having included the capital gain in the profit and loss account which. Matbook profit under section 115jacapital gains exempted under section 54ec being reckoned for purpose of computing book profit conclusion. Section 115jb, incometax act, 1961 2015 7special provision for payment of tax by certain companies. Computation of book profit under sec 115jb income tax forum. O seems to have acted beyond the provisions laid down in section 115jb and has made the.
Where in the case of a company, the incometax payable on the total income as computed under the incometax act, is less than15% of its book profit, such book profit shall be deemed to be the total income of the. As the book profit based on ind as compliant financial statement is likely to be different from the book profit based on existing indian gaap, the cbdt constituted a committee in june, 2015 for suggesting the framework for computation of mat liability under section 115jb for ind as compliant companies in the year of adoption and thereafter. Mat computation of book profit us 115jb doubtful debts. The tax rate is 15% with effect from ay 202021 fy 201920 2. Computation of book profits by ind as compliant companies. The minimum alternative tax mat is a provision introduced in direct tax laws to limit the tax deductionsexemptions otherwise available to taxpayers so that they pay a minimum amount of tax to the government. Cbdt issues faqs on computation of book profit for levy of. Profit from sale of agricultural land is not book profit. The broad framework for computing annual book profits under section 115jb of the act in alignment with ind as compliant financial statements have also been proposed which are as under. Claimed as per accounts and under 115jb from year 1 to year 3. Minimum alternate tax part iii computation of book profits. The procedure for the computation of book profit as per. While computing the book profits under the provisions of section 115jb of the incometax act, 1961 the act, disallowance under section 14a of the act has been a topic of debate since its inception with reference to increasing the book profit by such disallowance. For computation of book profit, one may proceed as follows.
Minimum alternate tax mat us 115jb of income tax act, 1961. The profit and loss account prepared in accordance with the provisions of part ii to schedule vi of the companies act should be read along with the. Computation of book profits by ind as compliant companies for levy of mat free download as powerpoint presentation. Jul 06, 2017 ca jyoti gupta has analyzed the recent judgement of the itat special bench in acit vs. These requirements should be read together with the existing provisions for computation of mat under section 115jb of the act, in particular, the. The revised section 115jb of the incometax act, 1961 the act prescribes that. Cbdt issues faqs on computation of book profit for. The finance act, 2017 also provides certain adjustments to book profits for mat computation.
Meaning of book profit as per explanation 1 to section 115jb 2 book profit for the purposes of section 115jb means net profit as shown in the statement of profit and loss prepared in accordance with schedule iii to the companies act, 20 as increased and decreased by certain items prescribed in this regard. It is the net profit shown in the profit and loss account for the previous year in question and as increased and decreased by certain items. Framework for computation of book profit for the purposes of levy of mat under section 115jb of the incometax act, 1961 for indian accounting standards ind as compliant companies. Minimum alternate tax part v computation of book profits. Cbdt amends the report on computation of book profits for ind as compliant companies background the finance act, 2017 notified on 31 march 2017, has introduced a separate formula for computation of book profit for the entities that prepare financial statements under indian accounting standards ind as.
Jul 26, 2017 section 115jb of the act already provides for adjustments for dividend for computation of book profit. Section 115jb of the act already provides for adjustments for dividend for computation of book profit. Nov 27, 2019 tax liability as per the mat provisions are given in sec 115jb 18. Cbdt amends the report on computation of book profits for. Framework for computation of book profit for the purposes of levy of mat under section 115jb of the incometax act, 1961 for indian accounting standards ind as compliant companies may 03, 2016.
The taxpayer reduced inr 25 being lower of unabsorbed loss and unabsorbed depreciation in the tax computation under section 115jb of the act. Cbdt circular of clarifications faqs on computation of s. The finance act, 2017 notified on 31 march 2017, has introduced a separate formula for computation of book profit for the entities that prepare financial statements under indian accounting standards ind as. Tribunal rejected the contention ofthe assesseecompany. What will be the tax liability of essem minerals pvt. The assessing officer, accordingly, completed the assessment. Provisions of mat for payment of tax by certain companies section 115jb tax payable for any assessment year cannot he less than 15% of book profit. On the basis of the recommendations of the committee on matind as, the central government has notified 10 icds vide notification no. Step 2 adjustment to net profit to convert it into book profit which are given under explanation 1 to section 115jb2 book profit is arrived at after making specified adjustments to the profit as shown in the statement. Book profit simply means profit as computed in accordance with the provisions but before remuneration paid to partner. Cbdt issues faqs on computation of book profit for levy of mat and proposes amendment to section 115jb of the incometax act. However, for computing the eligible amount for the succeeding year, the taxpayer has adjusted inr 25 against.
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