Define Mat In Income Tax

Mat is a way of making companies pay a minimum amount of tax.

Define mat in income tax.

The concept of mat was introduced to target those companies that make huge profits and pay the dividend to their shareholders but pay no minimal tax under the normal provisions of the income tax act by taking advantage of the various deductions and exemptions allowed under the act. Year but by taking the advantage of various provisions of income tax law like exemptions deductions depreciation etc it may have reduced its tax liability or may not have paid any tax at all. Mat is similar to an advance tax. Jun 07 2018 10 06 ist.

The concept of mat credit was re introduced in 2005 with a carry forward mechanism of five years. Mat a brief introduction. As per section 115jb 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 of its book profit surcharge sc education cess ec secondary and higher education cess. But here only mat on company s u s 115jb is discussed.

Mat is calculated at 15 of the book profit as per section 115jb of income tax act 1961. It was introduced in the year 1987 and. Under the provisions of section 115jb where the income tax calculated under the income tax act is less than 18 5 of the book profit then such book profit shall be deemed to the total income of the assessee and tax payable by the assessee shall be 18 5 on book profits. Mat credit is the difference between the tax the company pays under mat and the regular tax.

It is allowed to be carried forward for a period of 15 financial years. Minimum alternative tax is payable under the income tax act. All companies are required to pay corporate tax based on which is higher of the following. With mat companies have to pay up a minimum amount of tax to the government.

No such tax is levied on other form of businesses such as partnership firms sole proprietorship association of person etc. Companies find various loop holes to avoid paying income tax by using several exemptions. Tax computed as per the normal provisions of the income tax law i e by applying the relevant tax rate to the taxable income of the company. As per the current tax provision of the income tax act 1961 minimum alternate tax mat are levied only on companies and alternate minimum tax amt on limited liability partnerships llps.