What Is Mat Tax With Example

Under existing rules book profit is calculated as per section 115jb of the income tax act 1961.

What is mat tax with example.

Presently mat is applicable to companies domestic and foreign. It is applicable to companies and firms llps. Mat is a tax levied under section 115jb of the income tax act 1961. Minimum alternate tax calculation example.

Mat is calculated as 15 of the book profit of the tax assesse. Mat a brief introduction. Minimum alternate tax mat minimum alternate tax is the tax paid by all the companies that come under the indirect tax category. The taxable income of abc company not availing any tax exemptions incentives as per the provisions of the income tax act 1961 is rs.

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. Answer ankush kumar arora. Mat is an attempt to reduce tax avoidance. Mat stands for minimum alternate tax as per income tax act 1962.

Normally a company is liable to pay tax in accordance with the provisions of the. Let us understand in detail what mat is. 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 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.

Minimum alternate tax mat meanwhile is like tax paid in advance. Later it was withdrawn by the finance act 1990 but reintroduced again from 1 april 1997. Minimum alternative tax is payable under the income tax act. Termed the minimum alternate tax mat operating with a mat credit carry forward mechanism.

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. It was first introduced by the finance act 1987 and made effective from ay 1988 89. As per the concept of mat the tax liability of a company will be higher of the following two. In the judgment echjay forgoings p ltd.