Minimum Alternate Tax-- MAT

*Good Morning Money!* *Q.* I recently heard about reduction in Corporate Tax and Minimum Alternate Tax (MAT). What is this MAT actually? *A.* There are companies which end up paying very little or no tax even though they make significant gains. This is because they avail many exemptions, deductions and incentives. To plug this loophole, govt. makes it mandatory that every company must pay at least Minimum Alternate Tax (MAT) under section 115JB. Any company that pays MAT, if the tax paid is more than what is accrued, then the excess amount is credited back as Tax Credit to the company. Suppose a company books a profit of Rs.10 lac. After claiming all applicable deductions, exemptions and depreciation, the gross taxable income comes out to be Rs.5 lac. Income tax applicable in this case will be = 30%^ of Rs.5 lac = Rs.1,50,000 However, applicable MAT = 18.5%* of Rs.10 lac = Rs. 1,85,000. So excess tax payable will be Rs.1,85,000 – Rs. 1,50,000 = Rs.35,000. This excess Rs.35,000 can be carried forward and set-off against regular tax payable in future. ^This has been reduced to 22% *This has been reduced to 15% as par recent announcement.