On September 20, Finance Minister Nirmala Sitharaman announced the reduction of Minimum Alternative Tax (MAT) for companies from 18.5 percent to 15 percent for those who continue to avail exemptions and incentives.
Also, companies that have their corporate tax rate cut to 22 percent without exemptions are not applicable to pay MAT.
This decision comes in the wake of the economic slowdown and GDP growth being at 5 percent. She reduced taxes on corporates and announced a slew of other measures.
So what is MAT and why has it been reduced.
Companies try to minimise giving taxes by taking advantage of depreciation, deductions, exemptions, etc from the government. So the government imposes a Minimum Alternate Tax or MAT as an advance tax on these companies. This makes the companies give at least a minimum amount of tax.
Basically, companies that are popularly known as ‘zero-tax’ companies show profits as per the Companies Act, but minimise tax outgo, as they display income that is zero or negative under the provisions of the Income Tax Act. With MAT, companies have to pay up a minimum amount of tax to the government.
In India MAT is levied under Section 115JB of the Income Tax Act, 1961. It was introduced in the year 1987 and implement the following year. However, it was repealed in 1990 and was re-inducted in 1997.
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