Section 115JB of the Income Tax Act, 1961 is a provision related to the Minimum Alternate Tax (MAT). It was introduced to ensure that companies, especially those that are profitable, do not avoid paying tax by taking advantage of various exemptions, deductions, and allowances provided under the Income Tax Act. In this blog, we will discuss the provisions of Section 115JB for the Assessment Year (AY) 2020-21.
Applicability of Section 115JB:
Section 115JB applies to all companies registered in India, including foreign companies, except those engaged in the business of generation or distribution of electricity. The section applies to both private and public companies and is applicable to companies regardless of the nature of their business or the sector in which they operate.
Computation of Minimum Alternate Tax:
The Minimum Alternate Tax (MAT) is calculated under Section 115JB by applying a rate of 18.5% (for AY 2020-21) on the adjusted book profit. The adjusted book profit is the net profit as per the profit and loss account of the company, after making certain adjustments as specified under the Income Tax Act.
The adjustments that are required to be made while computing the adjusted book profit include:
Depreciation – Depreciation as per the Companies Act, 2013 is reduced from the net profit while calculating the adjusted book profit.
Losses – Losses brought forward from earlier years and set off against the current year’s profits are added back to the net profit.
Exemptions – Any exemption or deduction claimed by the company under the Income Tax Act is added back to the net profit.
Provisions – Provisions made for expenses or losses that have not yet been incurred are added back to the net profit.
Deferred Tax – Deferred tax liability or asset is added or reduced, as the case may be, from the net profit.
The adjusted book profit, after making the above adjustments, is then multiplied by the MAT rate of 18.5% (for AY 2020-21) to arrive at the MAT payable by the company.
MAT Credit:
Any MAT paid by the company in a particular year can be carried forward and set off against the regular tax liability of the company in the subsequent years. The MAT credit can be carried forward for a period of 15 years from the year in which it was paid.
Impact of Section 115JB on Companies:
Section 115JB has a significant impact on the financial statements of companies. Companies need to compute the MAT liability and disclose it in their financial statements as a separate line item. The MAT liability, if not paid within the due date, can attract interest and penalty, thereby increasing the tax burden on the company.
Companies that have claimed significant exemptions and deductions under the Income Tax Act may find that their MAT liability is higher than their regular tax liability. This can result in a higher tax outgo for the company and can impact its profitability and cash flows.
However, companies that have paid MAT can take advantage of the MAT credit provisions and reduce their tax liability in subsequent years. This can help companies manage their tax outgo and improve their cash flows.
Impact of COVID-19 on Section 115JB:
The COVID-19 pandemic has had a significant impact on the Indian economy and the business environment. Many companies have faced financial losses and reduced profitability due to the pandemic, which has impacted their tax liability under Section 115JB.
In response to the pandemic, the government has introduced various measures to provide relief to companies, including the extension of various compliance deadlines and the reduction of tax rates for certain sectors. However, the provisions of Section 115JB continue to apply to all companies, and companies need to carefully evaluate their MAT liability and take advantage of the MAT credit provisions to manage their tax liability.
Conclusion:
Section 115JB is an important provision of the Income Tax Act, 1961 that helps to ensure that companies pay a minimum amount of tax, irrespective of the deductions and exemptions claimed by them. The provision has a significant impact on the financial statements of companies and can impact their profitability and cash flows. Companies need to carefully evaluate their MAT liability and take advantage of the MAT credit provisions to manage their tax liability effectively. With the impact of COVID-19 on the economy and the business environment, companies need to be aware of the impact of Section 115JB on their tax liability and plan accordingly.
Read more useful content:
- section 234e of income tax act
- section 286 of income tax act
- section 90a of income tax act
- section 40a(7) of income tax act
- section 226(3) of income tax act
- section 24 of income tax act
Frequently Asked Questions (FAQs)
What is Section 115JB of the Income Tax Act?
Section 115JB of the Income Tax Act, 1961 is a provision related to the Minimum Alternate Tax (MAT). It is applicable to all companies registered in India, except those engaged in the business of generation or distribution of electricity.
Which companies are covered under Section 115JB?
Section 115JB applies to all companies registered in India, including foreign companies, except those engaged in the business of generation or distribution of electricity.
What is the rate of MAT under Section 115JB for the Assessment Year 2020-21?
The rate of MAT under Section 115JB for the Assessment Year 2020-21 is 18.5%.
How is the MAT liability calculated under Section 115JB?
The MAT liability under Section 115JB is calculated by applying the MAT rate on the adjusted book profit. The adjusted book profit is the net profit as per the profit and loss account of the company, after making certain adjustments as specified under the Income Tax Act.
What are the adjustments required to be made while computing the adjusted book profit under Section 115JB?
The adjustments required to be made while computing the adjusted book profit under Section 115JB include depreciation, losses brought forward from earlier years, exemptions or deductions claimed by the company under the Income Tax Act, provisions made for expenses or losses that have not yet been incurred, and deferred tax liability or asset.
Can MAT paid under Section 115JB be carried forward and set off against regular tax liability in subsequent years?
Yes, MAT paid under Section 115JB can be carried forward and set off against regular tax liability in subsequent years. The MAT credit can be carried forward for a period of 15 years from the year in which it was paid.
Is interest and penalty applicable if MAT liability under Section 115JB is not paid within the due date?
Yes, interest and penalty may be applicable if MAT liability under Section 115JB is not paid within the due date. The interest rate is 1% per month or part of a month, and the penalty can be up to 50% of the amount of MAT not paid.
How does Section 115JB impact the financial statements of companies?
Section 115JB has a significant impact on the financial statements of companies. Companies need to compute the MAT liability and disclose it in their financial statements as a separate line item.
Can the impact of COVID-19 on business operations impact the MAT liability of companies under Section 115JB?
Yes, the impact of COVID-19 on business operations can impact the MAT liability of companies under Section 115JB. Companies that have faced financial losses and reduced profitability due to the pandemic may find that their MAT liability is higher than their regular tax liability.
How can companies manage their tax liability under Section 115JB effectively?
Companies can manage their tax liability under Section 115JB effectively by carefully evaluating their MAT liability, taking advantage of the MAT credit provisions, and planning their tax payments and cash flows effectively. They can also seek professional advice from tax experts to manage their tax liability effectively.
