Posts tagged taxation

Minimum Alternate Tax (MAT)

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

What is Deemed Income?

Do You have Deemed Income ?

  • The government “deems” it fit to see income even when there might be none. At present 22 such provisions exist in the Income Tax Act
  • In case of a seller; if a person has sold a flat for 22 lakhs but the fair value assessed by the authorities comes to 24 lakhs, the extra 2 lakhs would be added to the taxable income and deemed to be received
  • In case of a buyer, if the purchase price is seen to be below the value taken for stamp duty in case of immovable property, even if it is not registered, the difference is added to the income
  • The provisions apply only to Individuals and Hindu Undivided families, and are thus discriminatory
  • The registering authorities are neither qualified engineers nor valuers and often go by street rates or thumb rule
  • No proper inspection of properties are done to check whether it is in a good shape or dilapilated, hence distorting the value

Some Deals Deemed as Taxable Income

  • Loans/advances taken by shareholder with 10 per cent stake
  • Transfer of assets by firm, or even assets to son’s wife
  • Money, jewellery, income of spouse, investments not fully disclosed
  • Aircraft operation for passengers/cargo, goods transport
  • Civil construction work by Indian and foreign firms

Author: Rahul Sonthalia, Analyst, Kredent Group