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.