Minimum alternate tax or MAT is a tax levied on firms/ companies or limited liability partnership (LLPs) making abundant profits as well as distributing dividend to its shareholders who leveraging on the features of the Indian taxation system do not contribute towards the government's taxation kitty.
Thus, for such corporates a minimal tax amounting to some fixed % of book profits i.e. profits according to accounting records is charged as minimal alternative tax (MAT). Further, it is the duty of a Chartered Accountant to certify that the computation of book profit of such corporates is in line with the Income Tax Act provisions.
Reason for levy of MAT
As corporates with their excellent tax planning and capitalizing on the available deductions, exemptions and incentives under the Income tax law tend to contribute insignificantly towards the governments tax kitty, the levy of MAT was mandated globally by different governments. The levy of MAT is an attempt by the different governments to cut back on deficits in tax collection and hence prevent any likely upward trend in inflation.
Rate at which MAT is levied
Corporations or companies with tax liability below 18.5% of book profits have to pay minimum alternate tax (MAT) @ 18.5% in addition to education cess and surcharge on the book profits computed as per the provisions of the Income Tax Act.
Limited Liability partnership firms (LLPs) have a liability to pay minimum alternate tax @ 19.06% of the adjusted total income in the case where the liability of the normal income tax computed is less than the MAT amount payable.
The adjusted total income for the purpose of computation of MAT is the total income before accounting for the MAT provisions as increased on account of claim of certain deductions for the computation of total income.
MAT credit provided for MAT paid above normal tax payable
The extra amount levied on corporations with negligible tax liability in order to include their contribution in the overall tax collection is referred as MAT credit. It has to be noted down that government is not taking back the offered incentives instead a provision of adjustment or carry forward is available for following 10 years whenever the normal tax liability exceeds MAT payable.