The Minimum Alternate Tax is a measure to include all companies in the income tax loop. The MAT ensures that no company with healthy finances and substantial income can avoid paying income tax, even after claiming exemptions. This is an important topic for the UPSC syllabus of the Indian Economy subject [GS-III]. In this article, we will provide a brief overview of the MAT.
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Minimum Alternate Tax (MAT) Calculation
Most corporate entities operate under the following laws in India:
- Companies Act(2013)
- Income Tax Act(1961)
- Finance Act(1996)
These laws define the taxes and liabilities that a company has towards various stakeholders including the state. Companies were able to avoid paying tax by claiming legal exemptions under the following heads before the introduction of the Minimum Alternate Tax:
- Income Tax Deduction for employees
- Incentives disbursed to employees and shareholders
- Depreciation of assets and capital
MAT was introduced in 1988 to for the first time to bring zero tax companies into the ambit of tax. I was subsequently withdrawn in 1990 by the Finance Act(1990). It was reintroduced by the Finance Act(1996).
The tax is calculated on the basis of the following factors:
- Normal income tax liability of the company or entity
- 18.5% along with surcharge and cess will be levied on book profits in domestic currency or 9% in convertible foreign exchange.
The tax is applicable on all entities operating in India irrespective of Indian or foreign ownership. Notable exceptions are life insurance companies and shipping companies liable for tax on tonnage. MAT is also not required to be paid by companies having no permanent facilities in country under agreement with the Government of India.
Quick Facts about MAT for UPSC
|Full Form of MAT||Minimum Alternate Tax|
|What is minimum alternate tax with example?||MAT is a provision in Direct tax laws to limit tax exemptions availed by companies, so that they pay at least a minimum amount of corporate tax to the government.|
|When minimum alternate tax is applicable?||MAT is applied when the income of person which is to be taxed is found to be less than 15.5 per cent ( (plus surcharge and cess as applicable) of the book profit under Companies Act 2013; under Income Tax act provisions.|
|What is the difference between MAT and AMT (Alternate Minimum Tax)?||Earlier, MAT was applied to the companies but gradually the same has now been applicable to all other taxpayers in the name of AMT|
UPSC aspirants should find the above infomation adequate to cover this tax for the IAS examination. Questions related to this can be asked in the Prelims examination as well as the General Studies Paper II. An example of the type of questions asked in UPSC Prelims for this topic is given below:
Q. Consider the following statements:
- The aim of MAT is to bring into tax realm “Zero Tax Companies” who do not pay any tax.
- MAT is valid to all companies comprising foreign companies.
Select the correct ones
- 1 only
- 2 only
- Both 1 and 2
- Neither 1 nor 2
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