Minimum Alternate Tax is at present levied as an advance tax.
The government has decided not to abolish Minimum Alternate Tax (MAT), even after strong demand to remove it. Finance Minister Arun Jaitley in his Budget speech said that the government will allow carry forward of MAT to up to 15 years instead of 10 years.
Minimum Alternate Tax is at present levied as an advance tax. There was a strong demand for abolition of MAT. Jaitley said that although the plan for phasing out of exemptions will kick in from April 1, 2017, the full benefit of revenue out of phase-out will be available to government only after 7 to 10 years when all those who are already availing exemptions at present complete their period of availment.
Abhishek Goenka , Partner – Tax & Regulatory Services , PwC said that with profit linked incentives being phased out, there was a requirement to phase out MAT.
“While the expectation was to also reduce the MAT rate from 18.5 percent, the extended carry forward of MAT credit is a welcome move as it will enable companies’ to off-set their future tax liabilities once the profit linked investments are phased out,” said Goenka.
As per the Income Tax Act, every taxpayer being a company is liable to pay MAT, if the income tax (including surcharge and cess) payable on the total income, computed as per the provisions of the Income-tax Act in respect of any year is less than 18.50 percent of its book-profit.
Amit Singhal, Partner – Direct Tax on MAT said that contrary to industry expectations, MAT is expected to continue in near future. However, he said that the Government has granted partial relief to corporate taxpayers by extending the period allowed to carry-forward the MAT Credit to 15 years from existing 10 years.
The Act had said that if in any year a company pays its tax liability as per MAT, then it can claim MAT credit being the excess MAT paid over the normal tax liability. Here, it can carry forward the MAT credit for adjustment in subsequent year(s), however, the MAT credit can be carried forward only for a period of 10 years after which it will lapse.
In other words, if MAT credit cannot be utilised by the company within a period of 10 years (immediately succeeding the assessment year in which such credit was generated), then such credit will lapse. Now on, it will be extended to 15 years.