Description
The presentation explaining minimum alternate tax (MAT), tax liability and discusses a case
Income Tax on Companies
Minimum Alternative Tax (MAT)
• 115JB : If tax liability of a company under normal provisions is lower than 10 per cent of “book profit”, • “Book profit” shall be deemed as total income and 10 per cent of “book profit” should be deemed as tax liability
Amount to be added back if debited to profit and loss account 1. Income-tax paid or payable :-Income-tax, interest under the Income-tax Act, dividend tax under section 115-O, (MF) distribution tax under section 115R including surcharge, education cess and secondary and higher education cess if debited to profit and loss account shall be added back. No adjustment is required in the respect of the following taxes (including interest, penalty, fine, surcharge, education cess, etc.) - Securities transaction tax, banking cash transaction tax, commodities transaction tax, wealth-tax, gift-tax, fringe benefit tax, indirect taxes. Moreover, no adjustment is required in respect of penalty/fine under the Income-tax Act.
2. Amounts carried to any reserves, by whatever name called:No adjustment is required in respect of reserve created under section 35AC 3. Amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities 4. Amount by way of provision for losses of subsidiary companies
5. Amount or amounts of dividends paid or proposed
6. Amount of expenditure relatable to any exempt income (if such income is not subject to minimum alternate tax):- Expenses pertaining to exempt income if debited to profit and loss account shall be added back.
7. The amount of depreciation 8. Amount of deferred tax and the provisions and amounts set aside for diminution in value of assets
Amount to be deducted from net profit 9. Amount withdrawn from reserves or provisions, if any such amount is credited to the profit and loss
10. Income exempt from tax :- The exempted incomes, if credited to profit and loss account, shall be deducted
11. Depreciation debited to profit and loss account 12. Amount withdrawn from revaluation reserve credited to profit and loss account to the extent it does not exceed the amount of depreciation on account of revaluation of assets 13. Amount of loss brought forward or unabsorbed depreciation, whichever is less, as per books of account 14. Amount of profit eligible for deduction under sections 80HHC, 80HHE and 80HHF 15. Profit of sick industrial unit 16. The amount of deferred tax, if any such amount is credited to P&L a/c
From the gross total income, the following deductions are permissible under sections 80C to 80U—
80G : Donations to charitable institutions and funds 80GGA : Donations for scientific research or rural development 80GGB: Contribution to political parties 80-IA
rofits and gains from industrial undertakings engaged in infrastructure, etc. 80-IAB rofits and gains by an undertaking or enterprise engaged in development of Special Economic Zone 80-IB Profits and gains from certain industrial undertakings other than infrastructure development undertakings 80-IC Profits and gains of certain undertakings in certain States 80JJA Profits from the business of collecting and processing of biodegradable waste 80-ID Profits of hotels and convention centres 80-IE Profits of undertakings in North Eastern States 80JJAA Employment of new workmen 80LA Income of Offshore Banking Units
Tax liability
• Tax @30% of total income or 10% of book profit, whichever is higher. • Add 10% Surcharge if income/book profit exceeds Rs.1 crore • Add 2% education cess and 1% higher education cess on amount of tax+surcharge
Case study
• An assessee, who carries on a business, acquires a plant and machinery costing Rs. 1,00,000 in year one. This plant and machinery is utilised for the business of the company till year ten when it is discarded and sold at the depreciated price. In this case, the taxpayer can claim depreciation from year one to year ten under section 32. • Effective tax benefits depend upon maximum marginal rate of tax. For this purpose, it is assumed that the maximum marginal rate of tax is 33.99 per cent. • Tax savings are discounted at the rate of 10 per cent to find out present worth in year one. • This case study is based on two plans, namely, (i) when owned funds are invested, and (ii) when 75 per cent cost of plant is financed by deposit taken from public. • Avg. rate of depreciation is 15% and rate of interest on borrowed funds is 9%. Entire loan is repaid at the end of year 10.
doc_642932333.ppt
The presentation explaining minimum alternate tax (MAT), tax liability and discusses a case
Income Tax on Companies
Minimum Alternative Tax (MAT)
• 115JB : If tax liability of a company under normal provisions is lower than 10 per cent of “book profit”, • “Book profit” shall be deemed as total income and 10 per cent of “book profit” should be deemed as tax liability
Amount to be added back if debited to profit and loss account 1. Income-tax paid or payable :-Income-tax, interest under the Income-tax Act, dividend tax under section 115-O, (MF) distribution tax under section 115R including surcharge, education cess and secondary and higher education cess if debited to profit and loss account shall be added back. No adjustment is required in the respect of the following taxes (including interest, penalty, fine, surcharge, education cess, etc.) - Securities transaction tax, banking cash transaction tax, commodities transaction tax, wealth-tax, gift-tax, fringe benefit tax, indirect taxes. Moreover, no adjustment is required in respect of penalty/fine under the Income-tax Act.
2. Amounts carried to any reserves, by whatever name called:No adjustment is required in respect of reserve created under section 35AC 3. Amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities 4. Amount by way of provision for losses of subsidiary companies
5. Amount or amounts of dividends paid or proposed
6. Amount of expenditure relatable to any exempt income (if such income is not subject to minimum alternate tax):- Expenses pertaining to exempt income if debited to profit and loss account shall be added back.
7. The amount of depreciation 8. Amount of deferred tax and the provisions and amounts set aside for diminution in value of assets
Amount to be deducted from net profit 9. Amount withdrawn from reserves or provisions, if any such amount is credited to the profit and loss
10. Income exempt from tax :- The exempted incomes, if credited to profit and loss account, shall be deducted
11. Depreciation debited to profit and loss account 12. Amount withdrawn from revaluation reserve credited to profit and loss account to the extent it does not exceed the amount of depreciation on account of revaluation of assets 13. Amount of loss brought forward or unabsorbed depreciation, whichever is less, as per books of account 14. Amount of profit eligible for deduction under sections 80HHC, 80HHE and 80HHF 15. Profit of sick industrial unit 16. The amount of deferred tax, if any such amount is credited to P&L a/c
From the gross total income, the following deductions are permissible under sections 80C to 80U—
80G : Donations to charitable institutions and funds 80GGA : Donations for scientific research or rural development 80GGB: Contribution to political parties 80-IA
rofits and gains from industrial undertakings engaged in infrastructure, etc. 80-IAB rofits and gains by an undertaking or enterprise engaged in development of Special Economic Zone 80-IB Profits and gains from certain industrial undertakings other than infrastructure development undertakings 80-IC Profits and gains of certain undertakings in certain States 80JJA Profits from the business of collecting and processing of biodegradable waste 80-ID Profits of hotels and convention centres 80-IE Profits of undertakings in North Eastern States 80JJAA Employment of new workmen 80LA Income of Offshore Banking UnitsTax liability
• Tax @30% of total income or 10% of book profit, whichever is higher. • Add 10% Surcharge if income/book profit exceeds Rs.1 crore • Add 2% education cess and 1% higher education cess on amount of tax+surcharge
Case study
• An assessee, who carries on a business, acquires a plant and machinery costing Rs. 1,00,000 in year one. This plant and machinery is utilised for the business of the company till year ten when it is discarded and sold at the depreciated price. In this case, the taxpayer can claim depreciation from year one to year ten under section 32. • Effective tax benefits depend upon maximum marginal rate of tax. For this purpose, it is assumed that the maximum marginal rate of tax is 33.99 per cent. • Tax savings are discounted at the rate of 10 per cent to find out present worth in year one. • This case study is based on two plans, namely, (i) when owned funds are invested, and (ii) when 75 per cent cost of plant is financed by deposit taken from public. • Avg. rate of depreciation is 15% and rate of interest on borrowed funds is 9%. Entire loan is repaid at the end of year 10.
doc_642932333.ppt