Minimum Alternate Tax May Be Credited Against Corporate Tax

Jun. 18 – India may allow companies in all sectors paying the minimum alternate tax (MAT) to credit it against corporate tax that can be carried forward for 10 years according to a revised discussion paper released on Tuesday.

Currently, MAT is levied at 19.93 percent of book profits. The long awaited Direct Tax Code (DTC) is proposing that the MAT be levied at 0.25 percent of the value of gross assets for banking companies and two percent of the value of gross assets for the rest with no option of using the tax credit in the following year.

The DTC proposal will mean that companies will be levied MAT even during years where they are struggling with a downturn and losing profits since the tax will be tied to assets and not profits.

The revised discussion paper wants to go back to the current practice of levying MAT on book profits instead. Since the DTC proposal has no carry forward for tax credits, a company will end up paying higher overall tax even during a low profit year with no option to credit it in the future.

The government is inviting comment on the new revised paper until the end of June. The paper also addresses important issues regarding tax treatment of savings, the status of double tax avoidance agreements, the administration of the general anti-avoidance rule, taxation of income from house property on a presumptive basis, tax treatment of capital gains and tax treatment of non-profit organizations, to name a few.

A copy of the revised discussion paper can be downloaded here.