Impact On MAT After Budget Is Declared

by February 2, 2017 0 comments

By Mr. Shubham (Founder and CEO of Businesswindo)

Minimum Alternate Tax (MAT) is not a novel concept. It has been in existence in India for at least for the last two decades. The reason for the imposition of MAT is pretty simple – Companies with significant incomes, which even go the extent of companies distributing dividends to shareholders, take advantage of incentives and deductions to show close to zero net profit thereby evading tax payments. The prime reason for this argument arising is because the companies project their Profit & Loss (P&L) statements according to Companies Act to their shareholders while they prepare the same according to the Income Tax Act while filing for tax.

MAT is currently applicable to all domestic companies and any other company that has a permanent establishment (PE) in India. There is a lot of confusion over the latter part of the above sentence, especially with respect to whether it is right to tax companies which do business in India without a PE. Companies need to pay a minimum amount of tax (to the tune of 18.5% of net income) irrespective of whether the company is posting profits or losses. This, especially, hits the loss making firms really hard. As loss making entities try to revamp their business and return to profitability, this tax burden will make it difficult to achieve even break-even as there will be a significant financial drain. This will be equally applicable to those companies posting profits but not sufficient enough to pay for MAT

A slight cut in corporate tax rates appears imminent in the Budget 2017. What attains more significance is the possibility of a reduction in Minimum Alternate Tax (MAT) rates, which have increased over the past few years even as corporate tax rates have remained static. A high MAT rate of 18.5% adversely impacts the cash flow of companies that have low taxable income or have incurred losses. Further, it also dilutes the tax incentives otherwise available to business entities. Government admits that rationalisation of MAT has been on the cards. However, no additional MAT-related concessions are not available for SEZ developers and units, which will continue to be covered by its provisions. Apart from discussions relating to a possible reduction in the MAT rate by a few percentage points, the other point of deliberation in the run-up to budget relates to the period available for carry forward and set-off of MAT credit against normal taxes has been extended to from 10 to 15 years.
MAT does not affect the long-run prospects of India as an investment destination. It also becomes amply clear that MAT augurs well for all the companies as they implicitly force them to seek ways to better utilize the resources available at their disposal. By doing this, India positions itself well in the global economy as it strives to create an atmosphere to achieve better utilization of resources.



Start-up’s now  enjoy tax holiday an additional of four years extension of tax holiday from 2014-15 till 2021-2022 exactly a relief of 7 years been relaxed from the Government. So, this would enable a boosting energy as well as big thumps for the entrepreneurs. This greater relief make the budding companies to establish and spread its wings in proper area, as the time factor is been controlled for a term. However, the promoters would be able to lend/borrow funds accordingly as per the activity of the business.

The interesting part is that, even the micro, small, medium enterprises even which are not qualified under the “Start-up-entity” now are eligible for tax reduction of 5% from 30% tax liability. So, the MSME which have turnover less than or equal to 50 crores, would avail this benefit. This enables, greater productivity, and investment by the investors as well as yields better reserves for the companies to fight the inflation in the tough times.


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