UNION BUDGET 2006-07 MAT
PROVISION PERTAINING TO MINIMUM ALTERNATE TAX (MAT)
Dr. Tejinder Singh Rawal
Chartered Accountant
tsrawal@tsrawal.com
The existing provisions
The existing provisions of section 115 JB provides that in case of a Company, if the Income Tax payable on the total income as competent under this Act in respect of any previous year relevant to the assessment year commencing on or after 01,04,2001 is less than 7.5% of its book profits, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee for such previous year shall be 7.5% of such book profit
The Explanation to sub section (2) of section 115 JB defines ‘book profit’ to mean the net profit as shown in the profit and loss account for the relevant previous year prepared in accordance with parts II and III of schedule VI to the Companies Act 1956 and as increased or reduced by certain adjustments as specified in the said Explanation.
Sub section 1 of section 115 JAA provides that where any tax is paid under section 115 JA by a Company for any assessment year the credit in respect of the tax so paid shall be allowed in accordance with the provisions of the said section 115JAA. Sub-section (1A) of section 115JAA provides for a similar provision with regard to any amount of tax paid under section 115JB for the assessment year commencing on 1st April, 2006 and any subsequent year. Sub section (2) of section 115JAA provides that the tax credit to be allowed under sub-section (1) shall be the difference of the tax paid for any assessment year under section 115JA of section 115JB, as the case may be, and the amount of tax payable under the normal provisions of the Income –tax Act. Sub- section (3) of section 115JAA provides that the amount of credit determined under sub-section (2) shall be carried forward and set off in accordance with the provisions of sub-sections (4) and (5) of the said section, but such carry forward shall not be allowed beyond the fifth assessment year immediately succeeding the assessment year in which the tax credit become allowable under sub-section (1) of the said section.
THE PROPOSED AMENDMENT
a. Sub section (1) of section 115JB is proposed to be amended by clause 24 to substitute the words 10% in place of 7.5%, with the result that if the Income Tax payable on the total income as computed under the Income Tax Act in respect of any previous year relevant to the assessment year 2007-08 is less than 10% of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable for the relevant previous year shall be 10% of such book profit.
b. The definition of book profit as provided in Explanation to sub section (2), under clause (f) of the Explanation, provided for adjustment relating to amount of expenditure relatable, inter alia, to section 10(23G). Clause 24 of the Budget proposes to omit the reference to ‘other than the provisions contained in clause (23G) thereof ‘ from clause (f) and clause II of the Explanation to section 115 JB. This proposed amendment is consequential to proposed omission of clause (23G) of section 10, by clause 4 of the finance bill.
c. DEPRECIATION
Clause 24 proposes to amend the definition of ‘book profit’ has provided an Explanation to section 115 JB by insertion of a new clause (g) which provides that for the purpose of this section book profit shall be increased by the amount of depreciation debited to the profit and loss account. Further, it is proposed to insert a new clause (iia) in the Explanation so as to provide that the amount of depreciation claimed in the books of account, excluding the claim of depreciation arising on account of revaluation of assets, shall be reduced from the book profit. Read together, the implication of these two proposals is to allow depreciation incurred in the normal course of business, and exclude depreciation arising out of revaluation of assets. It is also proposed by way of insertion of a new clause (ii b) in the said Explanation to provide that the amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets, shall be reduced from the book profit. This last amendment is proposed with a view to avoiding double taxation on this account.
d ENHANCED PERIOD FOR CARRY FORWARD OF MAT CREDIT
Clause 23 of the Finance Bill proposes to amend section 115 JAA to provide that the amount of Tax credit for MAT paid under section 115JB for the assessment year 2006-07 and later shall be allowed to be carried forward and set off for seven assessment years immediately succeeding the assessment year in which the Tax credit becomes allowable under the said section
The amendments pertaining to section 115JAA and section 115JB shall take effect from 1st April 2007 and accordingly shall apply in relation to assessment year 2007-08 and subsequent years.
PROPOSED AMENDMENT IN PROVISION PERTAINING TO SELF ASSESSMENT AND INTEREST
The Existing provisions
The existing provisions of section 140A provides that where any tax is payable on the basis of any return required to be furnished under section 115WD or section 115WH or section 139 or section 142 or section 148 or section 153A or as the case may be section 158B after taking into account the amount of tax, if any already paid under any provision of this Act the assessee shall be liable to pay such tax together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest.
Sub section (1A) of section 140A provides that for the purpose of sub section (1 )interest payable under section 234A shall be computed on the amount of the tax on the total income as declared in the return as reduced by the advance tax, if any paid and any tax deducted or collected at source.
THE PROPOSED AMENDMENT
The Finance Bill 2006 seeks to provide a relief to the assessee in the form of credit for MAT and Tax paid in a country or specified territory outside India for the purpose of calculating interest under section 140A. It seeks to amend sub section (1) as under after taking into account:-
i. the amount of tax, if any, already paid under any provision of this Act.
ii any tax deducted or collected as source;
iii any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India;
iv any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section; and
v any tax credit claimed to be set off in accordance with the provisions of section 115JAA;
Similarly in sub section (1A) the following clause is proposed to be substituted under section 234 shall be computed on the amount of the tax on the total income as declared in the return as reduced by the amount of:-
a. advance tax, if any, paid;
b. any tax deducted or collected at source;
c. any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India;
d. any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section; and
e. any tax credit claimed to be set off in accordance with the provisions of section 115JAA;
The Explanation to section 140A is also proposed to be amended, to define ‘Assessed Tax’ as tax on total income as reduced by the amount of TDS, TCS, relief of Tax or deduction claimed under section 90, 91 or 90A, and MAT and section 115JAA
INTERPRETATION
This proposed amendment comes as a major relief to the assesses paying MAT or taxes of a foreign country. The proposal recognizes that such taxes are no different from taxes deducted at source, collected at source or paid in advance, and hence should receive similar treatment for the purpose of levy of interest. The Finance Minister seems to have adopted a pragmatic approach while proposing this concession.
CREDIT FOR MAT AND FOREIGN TAXES FOR THE PURPOSE OF INTEREST U/Ss 234A, 234B & 234C
Similar amendments have been proposed in sections 234A, 234B & 234C, to provide for reduction of Tax credit allowed to be set off under section 115JAA from the tax on total income, and reduction the amount of relief of tax allowed under sections 90 & 90A and deductions from Indian Income Tax allowed under section 91, from the tax on total income, for the purpose of levy of interest for defaults in furnishing return of income (section 234A), interest for defaults in payment of advance tax (234B), and interest for deferment of advance tax(234C).
As said in the case of propose amendment in section 140A, the inclusion of MAT and foreign taxes for the purpose of sections 234A, 234B and 234C would also come as a major relief to the taxpayers.
These amendments will take effect from 1st April 2007 and will accordingly apply in relation to the assessment year 2007-08 and subsequent years.
Chartered Accountant
tsrawal@tsrawal.com
The existing provisions
The existing provisions of section 115 JB provides that in case of a Company, if the Income Tax payable on the total income as competent under this Act in respect of any previous year relevant to the assessment year commencing on or after 01,04,2001 is less than 7.5% of its book profits, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee for such previous year shall be 7.5% of such book profit
The Explanation to sub section (2) of section 115 JB defines ‘book profit’ to mean the net profit as shown in the profit and loss account for the relevant previous year prepared in accordance with parts II and III of schedule VI to the Companies Act 1956 and as increased or reduced by certain adjustments as specified in the said Explanation.
Sub section 1 of section 115 JAA provides that where any tax is paid under section 115 JA by a Company for any assessment year the credit in respect of the tax so paid shall be allowed in accordance with the provisions of the said section 115JAA. Sub-section (1A) of section 115JAA provides for a similar provision with regard to any amount of tax paid under section 115JB for the assessment year commencing on 1st April, 2006 and any subsequent year. Sub section (2) of section 115JAA provides that the tax credit to be allowed under sub-section (1) shall be the difference of the tax paid for any assessment year under section 115JA of section 115JB, as the case may be, and the amount of tax payable under the normal provisions of the Income –tax Act. Sub- section (3) of section 115JAA provides that the amount of credit determined under sub-section (2) shall be carried forward and set off in accordance with the provisions of sub-sections (4) and (5) of the said section, but such carry forward shall not be allowed beyond the fifth assessment year immediately succeeding the assessment year in which the tax credit become allowable under sub-section (1) of the said section.
THE PROPOSED AMENDMENT
a. Sub section (1) of section 115JB is proposed to be amended by clause 24 to substitute the words 10% in place of 7.5%, with the result that if the Income Tax payable on the total income as computed under the Income Tax Act in respect of any previous year relevant to the assessment year 2007-08 is less than 10% of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable for the relevant previous year shall be 10% of such book profit.
b. The definition of book profit as provided in Explanation to sub section (2), under clause (f) of the Explanation, provided for adjustment relating to amount of expenditure relatable, inter alia, to section 10(23G). Clause 24 of the Budget proposes to omit the reference to ‘other than the provisions contained in clause (23G) thereof ‘ from clause (f) and clause II of the Explanation to section 115 JB. This proposed amendment is consequential to proposed omission of clause (23G) of section 10, by clause 4 of the finance bill.
c. DEPRECIATION
Clause 24 proposes to amend the definition of ‘book profit’ has provided an Explanation to section 115 JB by insertion of a new clause (g) which provides that for the purpose of this section book profit shall be increased by the amount of depreciation debited to the profit and loss account. Further, it is proposed to insert a new clause (iia) in the Explanation so as to provide that the amount of depreciation claimed in the books of account, excluding the claim of depreciation arising on account of revaluation of assets, shall be reduced from the book profit. Read together, the implication of these two proposals is to allow depreciation incurred in the normal course of business, and exclude depreciation arising out of revaluation of assets. It is also proposed by way of insertion of a new clause (ii b) in the said Explanation to provide that the amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets, shall be reduced from the book profit. This last amendment is proposed with a view to avoiding double taxation on this account.
d ENHANCED PERIOD FOR CARRY FORWARD OF MAT CREDIT
Clause 23 of the Finance Bill proposes to amend section 115 JAA to provide that the amount of Tax credit for MAT paid under section 115JB for the assessment year 2006-07 and later shall be allowed to be carried forward and set off for seven assessment years immediately succeeding the assessment year in which the Tax credit becomes allowable under the said section
The amendments pertaining to section 115JAA and section 115JB shall take effect from 1st April 2007 and accordingly shall apply in relation to assessment year 2007-08 and subsequent years.
PROPOSED AMENDMENT IN PROVISION PERTAINING TO SELF ASSESSMENT AND INTEREST
The Existing provisions
The existing provisions of section 140A provides that where any tax is payable on the basis of any return required to be furnished under section 115WD or section 115WH or section 139 or section 142 or section 148 or section 153A or as the case may be section 158B after taking into account the amount of tax, if any already paid under any provision of this Act the assessee shall be liable to pay such tax together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest.
Sub section (1A) of section 140A provides that for the purpose of sub section (1 )interest payable under section 234A shall be computed on the amount of the tax on the total income as declared in the return as reduced by the advance tax, if any paid and any tax deducted or collected at source.
THE PROPOSED AMENDMENT
The Finance Bill 2006 seeks to provide a relief to the assessee in the form of credit for MAT and Tax paid in a country or specified territory outside India for the purpose of calculating interest under section 140A. It seeks to amend sub section (1) as under after taking into account:-
i. the amount of tax, if any, already paid under any provision of this Act.
ii any tax deducted or collected as source;
iii any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India;
iv any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section; and
v any tax credit claimed to be set off in accordance with the provisions of section 115JAA;
Similarly in sub section (1A) the following clause is proposed to be substituted under section 234 shall be computed on the amount of the tax on the total income as declared in the return as reduced by the amount of:-
a. advance tax, if any, paid;
b. any tax deducted or collected at source;
c. any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India;
d. any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section; and
e. any tax credit claimed to be set off in accordance with the provisions of section 115JAA;
The Explanation to section 140A is also proposed to be amended, to define ‘Assessed Tax’ as tax on total income as reduced by the amount of TDS, TCS, relief of Tax or deduction claimed under section 90, 91 or 90A, and MAT and section 115JAA
INTERPRETATION
This proposed amendment comes as a major relief to the assesses paying MAT or taxes of a foreign country. The proposal recognizes that such taxes are no different from taxes deducted at source, collected at source or paid in advance, and hence should receive similar treatment for the purpose of levy of interest. The Finance Minister seems to have adopted a pragmatic approach while proposing this concession.
CREDIT FOR MAT AND FOREIGN TAXES FOR THE PURPOSE OF INTEREST U/Ss 234A, 234B & 234C
Similar amendments have been proposed in sections 234A, 234B & 234C, to provide for reduction of Tax credit allowed to be set off under section 115JAA from the tax on total income, and reduction the amount of relief of tax allowed under sections 90 & 90A and deductions from Indian Income Tax allowed under section 91, from the tax on total income, for the purpose of levy of interest for defaults in furnishing return of income (section 234A), interest for defaults in payment of advance tax (234B), and interest for deferment of advance tax(234C).
As said in the case of propose amendment in section 140A, the inclusion of MAT and foreign taxes for the purpose of sections 234A, 234B and 234C would also come as a major relief to the taxpayers.
These amendments will take effect from 1st April 2007 and will accordingly apply in relation to the assessment year 2007-08 and subsequent years.
posted by Dr. Tejinder Singh Rawal at 11:40 pm
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