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Minimum alternate tax
The Sensex on Friday regained the 27,000-mark by surging over 506 points following the government’s move to mollify foreign investors’ taxation worries. Union Finance Minister Arun Jaitley has announced setting up of a high-level committee to look into the controversial issue of Minimum Alternative Tax (MAT).
The Sensex on Friday regained the 27,000-mark by surging over 506 points following the government’s move to mollify foreign investors’ taxation worries. Union Finance Minister Arun Jaitley has announced setting up of a high-level committee to look into the controversial issue of Minimum Alternative Tax (MAT).
The Income Tax Act allows a large number of exemptions from total income. Besides exemptions, there are several deductions permitted from the gross total income. Further, depreciation allowable under the Income Tax Act, is not the same as required under the Companies Act.
The latter provides a lower rate viz-a-viz the I-T Act which computes a higher rate of depreciation. The result of such exemptions, deductions, and other incentives under the IncomeTax Act in the form of liberal rates of depreciation is the emergence of zero tax companies, which in spite of having high book profit are able to reduce their taxable income to nil.
In order to bring such companies under the I-T net, Section 115JA was introduced from assessment year 1997-98. Now, all companies having book profits under the Companies Act shall have to pay a minimum alternate tax at 18.5%. MAT is a way of making companies pay minimum amount of tax. It is applicable to all companies except those engaged in infrastructure and power sectors.
Income arising from free trade zones, charitable activities, investments by venture capital companies are also excluded from the purview of MAT. However, foreign companies with income sources in India are liable under MAT. A matter which has attracted considerable debate in the public space in recent weeks is the levy of MAT on foreign institutional investors (FIIs). Considering their difficulty, the Finance Bill 2015-16 has provided exemption from MAT to the FIIs.
Naturally, when an exemption is given, it takes prospective effect. In view of a ruling given by the Authority for Advance Rulings in 2012, it was not possible to provide retrospective exemption for the prior period. Hence, the government’s decision to set up a panel headed by Justice AP Shah, Chairman of the Law Commission to give its recommendation on the specific issue of MAT on FIIs expeditiously.
