17.10 ndian onom
‘exemption’ (zero tax) though, recently, a activities, venture and angel funds. Foreign
LTCG of 10 per cent (above Rs. 1 lakh of companies with income sources in India also
capital gains) was introduced20 on them come under it. The Union Budget 2015–16 has
by the Government. rationalised the MAT provisions for the FIIs
(Foreign Financial Institutions)—now they do
MiniMuM alTernaTe Tax not need to pay MAT on their profits from capital
The Minimum Alternate Tax (MAT) is a direct gains on transactions in securities (which are liable
tax imposed on the ‘zero tax’ companies at the rate lower tax rate).
of 18.5 per cent on their book profit. This was first We may take an example – suppose a company
imposed in 1997–98. has ‘book profit’ of Rs. 10 lakh. And, after claiming
the deductuions, exemptions and depreciation its
Basically, income tax is paid as per the
‘gross taxable income’ comes down to Rs. 6 lakh,
provisions of the Income Tax Act (IT Act), but
its taxable income becoming Rs. 4 lakh. In this
companies calculate their profit (through profit
case, the applicable income tax would be Rs. 1.2
and loss account) as per the provisions of the
lakh (if rate of income tax is 30 per cent flat). But
Companies Act. The IT Act allows several kinds the comapny will pay a MAT of Rs. 1.85 lakh (at
of exemptions and other incentives from total the rate of 18.5 per cent on its ‘book profit’ of Rs.
income together with deductions on the gross 10 lakh). The concerned comapny needs to pay
income. Again, the rates of ‘depreciation’ under the tax which is higher—here, the tax to be paid
the Companies Act is higher than the IT Act. As will be Rs. 1.85 lakh.
a result of these exemptions, deductions and other At present the tax is collected as an advance
incentives under IT Act together with higher tax. The tax can be carried forward and set off
depreciation under the Companies Act, companies (adjusted) against regular tax payable during
show their taxable income either ‘nil’ or ‘negative’, the subsequent 10-year period (known as MAT
and this way, the ‘zero tax’ companies emerge. credit). There has been a strong demand to abolish
Practically, ‘zero tax’ companies, might be this tax in the country. Meanwhile, the Union
having high ‘book profit’ and distributing huge Budget 2017-18 announced to start phasing out
dividends (under the Companies Act) to their the exemptions available to the companies on it
shareholders, too, but showing ‘nil’ or ‘negative’ from April 2017. So that companies are able to
taxable income (under the IT Act) they might not use MAT credit, the carry forward period has been
pay any income tax! To bring such companies also increased to 15 years.
under the income tax, Section 115JB was
introduced in the IT Act in 1997–98 and MAT inVesTMenT allowance
was imposed accordingly. The GoI, in 2013–14, had announced an
MAT is a way of making companies pay ‘investment allowance’ of 15 per cent to the
minimum amount of tax. It is applicable on all companies investing Rs. 100 crore or more in
companies except those engaged in infrastructure plant and machineries. This was valid up to
and power sectors, free trade zones, charitable March 2016. This move was aimed at promoting
investment in the industrial sector as part of the
20. Union Budget 2018-19 introduced this tax (other than
the Security Transaction Tax which these financial fiscal stimulus programme started in wake of the
instruments already attract). global recession.