What is Minimum Alternate Tax (MAT)?

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About Minimum Alternate Tax (MAT)

It is a provision in the Income Tax Act of India.
It primarily applies to companies and is designed to ensure that companies that report substantial book profits but pay little to no income tax due to various exemptions and deductions are subject to a minimum level of taxation.
The primary objective behind the MAT tax in India is to curb tax avoidance by companies that manipulate their financial statements to reduce their taxable income artificially.
With the introduction of MAT, companies have to pay a fixed percentage of their profits as MAT.
MAT is applicable to all companies, including foreign companies.
- However, it does not apply to companies that have been granted exemption under Section 10AA of the Income Tax Act, which pertains to Special Economic Zones (SEZs).
MAT is calculated under Section 115JB of the Income-tax Act.
All companies are required to pay corporate tax based on which is higher of the following:
- Normal Tax Liability: 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.
- Minimum Alternate Tax (MAT): Tax computed at 15% (previously 18.5%) on book profit plus cess and surcharge.
MAT is calculated on the “book profits” of a company, which is different from the taxable profits computed under the regular provisions of the Income Tax Act.
What is MAT credit? When the amount of MAT for a company is greater than its normal tax liability, the difference between MAT and normal tax liability is called MAT Credit.

Key Facts about Vivad se Vishwas (VSV) Scheme

“Vivad se Vishwas Scheme” or “No Dispute but Trust Scheme” is a direct tax scheme introduced by the Government of India in 2020 for settling disputes between taxpayers and the income tax department.
It aims to minimize tax-related litigation.
Under this scheme, the interest and penalty associated with the disputed tax amount is completely waived off on the final settlement of the disputed tax amount.
There was a time limit set for the payment of taxes under the scheme.

Q1) What is Cess?

Cess is a form of tax charged/levied over and above the base tax liability of a taxpayer. A cess is usually imposed additionally when the state or the central government looks to raise funds for specific purposes. Cess is not a permanent source of revenue for the government, and it is discontinued when the purpose of levying it is fulfilled. It can be levied on both indirect and direct taxes.

Source: Assessee entitled to Claim Credit for MAT under VSV Scheme for year under consideration: ITAT [Read Order]