MAT sword hangs over India Inc’s head

The Finance Ministry has set up a committee to look into the aspect of whether and how the minimum alternate tax (MAT) is to be levied on companies that are required to adopt ‘Ind AS’ from April 1 next year.

Ind AS is the new generation accounting standards, largely modelled on the International Financial Reporting Standards (IFRS).

New specification According to the roadmap notified by the Corporate Affairs Ministry, Indian companies (listed or unlisted) with net worth of over ₹500 crore, should adopt Ind AS from April 1 next year.

Also, comparative information has to be provided for opening balance sheet as on or after April 1, 2015 and financial year ending on or after March 31, 2016.

“The current MAT provisions in the income tax law are aligned to existing Indian GAAP (Generally Accepted Accounting Principles).

“For companies that would migrate to Ind AS from April 1 next year, there is a feeling that MAT provisions may not apply. To sort this out, we have formed this committee”, Rakesh Kumar Bhoot, Director, Central Board of Direct Taxes (CBDT), told BusinessLine here. However, it remains to be seen if the committee recommends that MAT should be applicable on companies that are adopting Ind AS.

If that were to happen, one would see this proposal being introduced in next year’s Finance Bill, said the CBDT official.

Currently, the basis of levy of MAT is on book profits arrived at after using India GAAP. If Ind AS is adopted, there is every possibility that many companies may go out of the MAT net.

The CBDT committee has been set up to analyse the impact on companies that adopt Ind AS for computation of book profits and protection of tax revenues.

For India Inc, MAT has been a sore point with the tax rate climbing from a small single digit rate to about 20 per cent over the past decade.

Purpose of MAT The concept of MAT was introduced in the income-tax law to ensure that companies that made high profits and declared dividends to shareholders cannot avoid tax liability by using exemptions, deductions and incentives.

Under the income tax law, if a company’s taxable income is less than a certain percentage of the book profits then, by default, that much of the book profits will be considered as taxable income on which tax has to be paid.