Accounting for Credit Available in Respect of MAT, Check Detailed Analysis of Guidance Note on MAT, Analysis for Guidance Note on Accounting for Credit Available in Respect of Minimum Alternative Tax under the Income-tax Act, 1961. Find complete details regarding Guidance Note on Accounting for Credit Available in Respect of MAT.
Detailed Analysis of Guidance Note on MAT
- Companies deals with various aspects of accounting and also presentation of MAT paid under section 115 J B of the Income Tax Act and the credit available in this regard.
- The Guidance Note generally do not deal with the calculation aspects of MAT.
- In many cases, assessees consider MAT paid as the Deferred Tax Asset. However, it is not appropriate to consider the MAT credit as a deferred tax asset for the purposes of AS 22.
- The MAT credit should be recognized as an asset only when and to the extent there is a convincing evidence that the company will pay normal income tax during the specified period for which the credit can be availed.
- A company should write down the carrying amount of the MAT credit asset to the extent there is no longer a convincing evidence to the effect that the company will pay normal income tax during the specified period for which the credit can be availed.
- Where a company recognizes MAT credit as an asset on the basis of the considerations specified above in the guidance note, the same should be presented under the head ‘Loans and Advances’ since, there being a convincing evidence of realization of the asset, it is of the nature of a pre-paid tax which would be adjusted against the normal income tax during the specified period. The asset may be reflected as to ‘MAT credit entitlement’ in the books of the company.
- In the year of set-off of credit, the amount of credit availed should be shown as a deduction from the ‘Provision for Taxation’ on the liabilities side of the balance sheet. The unavailed amount of MAT credit entitlement, if any, should continue to be presented under the head ‘Loans and Advances’ if it continues to meet the considerations stated in the earlier paragraph of the guidance note.
- MAT is the current tax. Accordingly, the tax expense arising on account of payment of MAT should be charged at the gross amount, in the normal way, to the profit and loss account in the year of payment of MAT.
- For your reference, we are also providing you the sample format of how the Book Profit for MAT calculation is calculated.
- The format is as follows:
| 1. | Name of the assessee | XXX |
| 2. | Particulars of address | XXX |
| 3. | Permanent Account Number | XXX |
| 4. | Assessment year | XXX |
| 5. | Total income of the company under the Income-tax Act | XXX |
| 6. | Income-tax payable on total income | XXX |
| 7. | Whether Profit and Loss Account is prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956) | Yes/No |
| 8. | Whether the Profit and Loss Account referred to in column 7 above has followed the same accounting policies, accounting standards for preparing the profit and loss account and the same method of rates for calculating depreciation as have been adopted for preparing accounts laid before the company at its annual general body meeting? If not, the extent and nature of variation be specified | Yes/No |
| 9. | Net profit according to Profit and Loss Account referred to in (7) above | XXX |
| 10. | Amount of net profit as shown in Profit and Loss Account as increased by the amounts referred to in clauses (a) to (f) of Explanation of sub-section (2) of this section (file working separately, where required) | XXX |
| 11. | The amount as referred to in item 10 as reduced by the amounts referred to in clauses (i) to (vii) of Explanation of sub-section (2) of this section (file working separately, where required) | XXX |
| 12. | Book profit as computed according to Explanation given in sub-section (2) | XXX |
| 13. | 7.5% of “book profit” as computed in 12 above | XXX |
| 14. | In case income-tax payable by the company referred to at Sl.No.6 is less than seven and one-half per cent of its book profits shown in column 12, the amount of income-tax payable by the company would be 7.5% of column 12, i.e. as per (13)”. | XXX |