What Is Mat Tax Definition

Minimum alternative tax is payable under the income tax act.

What is mat tax definition.

The computation of mat on companies under the income tax act 1961 act is a complex provision as it makes certain specific mandated adjustments 1 the provisions relating to mat on companies and alternate minimum tax on llps are covered under chapters xii b and xii ba of the income tax act 1961 act. Mat is a tax levied under section 115jb of the income tax act 1961. Mat or minimum alternate tax is a provision in direct tax laws to limit tax exemptions availed by companies so that they pay at least a minimum amount of corporate tax to the government. The tax liability of a company will be higher of.

Tax preference item is a type of income normally tax free that may trigger the alternative minimum tax amt for taxpayers. As per the concept of mat the tax liability of a company will be higher of the following two. Tax preference item definition. Book profit of the company is rs.

Mat a brief introduction. Minimum alternate tax mat is a tax effectively introduced in india by the finance act of 1987 vide section 115j of the income tax act 1961 it act to facilitate the taxation of zero tax companies i e those companies which show zero or negligible income to avoid tax under mat such companies are made liable to pay to the government by deeming a certain percentage of their book. Normal tax rate applicable to an indian company is 30 plus cess and surcharge as applicable. It was first introduced by the finance act 1987 and made effective from ay 1988 89.

The key reason for introduction of mat is to ensure minimum levels of taxation for all domestic and foreign companies in india. A value added tax vat is a consumption tax placed on a product whenever value is added at each stage of the supply chain from production to the point of sale. 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. I normal tax liability or ii mat.

The minimum alternate tax mat on. But here only mat on company s u s 115jb is discussed. 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.