Brief On Revised Discussion Paper For Direct Tax Code (DTC) For Minimum Alternate Tax (MAT)

Minimum Alternate Tax (MAT)

Current Situation:

MAT applicable on Book profit

Proposed in DTC:

The DTC has proposed a MAT on companies calculated with reference to the “value of gross assets”.

Limitation of MAT to be applied on basis of Gross Assets

  • Computation of MAT with reference to gross value of assets will require all companies to pay tax even if they are loss making companies or operating in a cyclical downturn.
  • An asset based MAT on loss making companies would result in significant hardship since they would not have the resources to pay the tax.
  • Logically Income tax should be on real income and any method for presuming income should also be reasonable enough to come closer to the real income.

Proposed in Discussion Paper for DTC:

  • MAT will be computed with reference to Book Profit.
  • Proposed MAT will not allow any carry forward

What will be the Impact of above on Corporate?

  • Corporate would end up paying more overall tax in a low profit year. Also there will be no relief against above average profits earned in a subsequent year.

Author: CA Shalini Tibe

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