What Is Mat Tax With Example

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.

What is mat tax with example.

Minimum alternate tax mat meanwhile is like tax paid in advance. 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. Under existing rules book profit is calculated as per section 115jb of the income tax act 1961. Normally a company is liable to pay tax in accordance with the provisions of the.

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 alternative tax is payable under the income tax act. 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.

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 stands for minimum alternate tax as per income tax act 1962. Mat a brief introduction. Mat is calculated as 15 of the book profit of the tax assesse.

Mat is an attempt to reduce tax avoidance. Later it was withdrawn by the finance act 1990 but reintroduced again from 1 april 1997. Termed the minimum alternate tax mat operating with a mat credit carry forward mechanism. 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. Answer ankush kumar arora. It is applicable to companies and firms llps. The concept of mat was introduced to target those companies that make huge profits and pay the dividend to their shareholders but pay no minimal tax under the normal provisions of the income tax act by taking advantage of the various deductions and exemptions allowed under the act.

Let us understand in detail what mat is. In the judgment echjay forgoings p ltd. Presently mat is applicable to companies domestic and foreign. As per the concept of mat the tax liability of a company will be higher of the following two.