What is MAT?

The Minimum Alternative Tax (MAT) is imposed on book profit of companies who record nil or negligible profit to pay the usual corporate income tax. During the 1990s, companies having large profits and declaring substantial dividends to shareholders have paid no tax by arranging zero profitable income.

What is Book Profit?

Book profit means the net profit as shown in the profit & loss account for the relevant previous. Some components are added while some other components are deducted to get the book profit.

Rationale for MAT

There were several companies who had book profits as per their profit and loss account but were not paying any tax because income computed as per provisions of the income tax act. The Income Tax Act allows companies to claim certain exemptions, deduct certain expenses and make various provisions to while calculating taxable income. Because of these exemptions and deductions, the taxable profit may become zero despite having substantial book profit. These companies are popularly known as Zero Tax companies.

The MAT brings them under tax net by imposing a tax on their book profit as an alternative minimum tax.  So, even if there is no payment of the usual income tax, the zero tax companies have to pay the MAT which is a based upon the book profit.

MAT provisions says that a company has to pay MAT if the normal tax (income tax) payable by it is less than the MAT and that the MAT is to be computed with reference to its Book Profit as per Profit and Loss Account. As per budget 2015, MAT rate is 18.5% of the book profit.  Surcharge and cess also will be applicable.

Many amendments were made through Finance Acts regarding MAT rate.  The Finance Act of 2015, introduced as part of the budget 2015 has exempted FPIs from paying MAT.  A new press release also issued by the government in September 2015, indicating that foreign investors who are from DTAA countries and those companies that have no business presence in India need not  pay the MAT.