Deferred Tax On Mat Credit

In most countries if you made a loss last year you can pay less tax this year on your profits.

Deferred tax on mat credit.

Mat a brief introduction. Mat credit is not a deferred tax asset as per as 22 on accounting for taxes on income issued by icai deferred tax liability or deferred tax asset arises on account of timing differences i e. In this context the following definitions given in as 22 are noted. 2 whether mat credit can be considered as an asset.

11 april 2008 1 when ur income is more as per income tax act than the income as per companies act deferred tax asset arises. As per as 22 deferred tax assets and liability arise due to the difference between book income taxable income and do not rise on account of tax expense itself. Section 115jb levies minimum alternate tax mat at 10 of book profits plus surcharge and cess thereon if such tax is higher than the tax payable under the normal provisions of the act. Deferred taxes result from temporary differences between the book value of a company s assets and liabilities and their tax worth.

In the bucket marked deferred tax are timing differences tax losses and tax credits. 3 for provisions of mat refer sec 115jb of the it act 1961. 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. The treatment of deferred tax charge in determining the tax liability under the special provisions of section 115jb of the income tax act is one such case.

An issue has been raised whether the mat credit can be considered as a deferred tax asset within the meaning of accounting standard as 22 accounting for taxes on income issued by the institute of chartered accountants of india. They also may come from timing differences between the recognition of gains and losses in the. Minimum alternative tax is payable under the income tax act. 2 when ur income is less as per income tax act than the income as per companies act deferred tax liability arises.

Mat does not give rise to any difference between book income and taxable income. Whether mat credit can be considered as a deferred tax asset per as 22. Whether mat credit is a deferred tax asset 4. Under accounting standard as 22 discussed above though mat credit is not a deferred tax asset an expectation regarding future economic benefit arises in the form of the adjustment of the future income tax liability that arises within a specified time period.

A tax credit scheme is introduced by which mat paid can be carried forward for set off against regular tax payable during the subsequent fifteen years period subject to certain conditions as under when a company pays tax under mat the tax credit earned by it shall be an amount which is the difference between the amount payable under mat and.