With a population of over 1.3 billion people, India is a massive country. India has a progressive tax system, with higher rates for the wealthy and lower ones for the poor. With the surcharge provision, the Indian government ensures that the wealthy contribute more to income taxes than the poor. India also offers marginal surcharge relief to a limited group of taxpayers, allowing them to avoid paying the high rate of tax. Let’s take a closer look at how India executes these provisions:

Income Tax Surcharge

A premium on top of income taxes is known as an income tax surcharge. It’s an additional tax on people who earn a lot of money every year.

Rates of surcharge for various taxpayers

The Income Tax Act of 1961 imposes various income tax rate surcharges based on the taxpayer’s filing status.

Marginal relief for individuals

Case 1: A 10% surcharge will be charged on the taxable income at source if the total income* is greater than Rs.50 lakh but less than Rs.1 crore.

Certain taxpayers would obtain a marginal advantage up to the difference between the extra tax paid (including surcharge) on their income exceeding Rs.50 lakhs and the amount of income that exceeds Rs.50 lakhs, according to income-tax laws.

Assume a person’s total income in FY 2020-21 is Rs.51 lakhs.

• He will be obliged to pay a total tax of Rs. 14,76, 750 (excluding of a 10% surcharge on the total tax calculated).

• His tax liability would have been Rs.13,12,500 if he had only earned Rs.50 lakhs (inclusive of the cess).

• Isn’t it unjust to the individual? For earning an extra Rs.1 lakh, he will pay an income tax of Rs.1,64,250. So that there are no overpayments, the tax burden should be reduced.

• The individual will be free from paying any additional taxes above Rs. 13,12,500 (Rs. 1,64,250) because their excess tax due on higher-income surpasses that amount.

• There would be a margin relief of Rs.64,250 (Rs.1,64,250 minus Rs.1,00,000).

• As a result, on revenues of Rs. 51 lakhs, the income tax due is projected to be roughly Rs. 14,12,500.

Case 2: Where total revenue is greater than Rs. 1 crore but less than Rs. 2 crore

• To the amount of income tax that must be paid, a 15% surcharge will be added. The difference between the excess tax payable (including surcharge) on income beyond Rs.1 crore and the amount of income above Rs.1 crore is handed to the taxpayer as marginal relief.

• For example, if an individual’s total income in a fiscal year is Rs.1.01 crore, he will owe tax plus a 15% surcharge on the tax computed, resulting in a total tax bill of Rs.32,68,875.

• However, if he had only made Rs.1 crore, he would have owed Rs.30,93,750 in taxes. For earning an extra Rs.1,000,000, he will pay Rs.1,75,125 in income tax.

• As a result, the individual will receive a tax reduction equivalent to the difference between the excess tax payable on higher income (Rs.1,75,125) and the amount of income over Rs.1 crore (Rs.1,75,125) (Rs. 1,00,000, in this case).

• The amount of marginal assistance will be Rs.75,125 (Rs.1,75,125 minus Rs.1,000,000.00).

Borderline relief for enterprises

If your total income exceeds Rs. 1 crore, you would have to pay a 12 percent cargo on your income duty. A borderline relief would be granted to taxpayers with total income above Rs. 1 crore, meaning that the income duty outstanding ( including cargo) on the advanced income can not exceed the income duty outstanding on Rs. 1 crore by further than the quantum of income that exceeds Rs. 1 crore.

To put it another way, if a company’s total income is Rs.1.01 crores, it’ll oweRs. in duty, plus a cargo of 12 on the duty reckoned. The duty birthright would have been onlyRs. if the total profit had been only Rs. 1 crore. As a result of generating redundant Rs., it’ll have to pay Rs. in income duty.

As a result, the company will be eligible for a borderline duty reduction equal to the difference between the redundant duty payment on advanced income (Rs.) and the quantum of income exceeding Rs. 1 crore (Rs.) (Rs., in this case). ARs. small relief would be handed (Rs. minus Rs.).

Borderline relief for companies

Case 1 A 7 cargo will be added to the income duty due when a domestic company’s total income surpasses Rs. 1 crore but doesn’t exceed Rs. 10 crores.

Also, transnational pots with a total income of further than Rs. 1 crore but lower than Rs. 10 crore would be charged a 2 cargo on their income duty liability.

Companies with a total income of further than Rs. 1 crore but lower than Rs. 10 crores will be eligible for borderline relief, which means that the income duty outstanding on the advanced income ( including cargo) can not exceed the income duty outstanding onRs. 1 crore by further than the quantum of income that exceeds Rs. 1 crore.

Case 2 A cargo of 12 will be assessed to the income duty due if a domestic company’s total income exceeds Rs. 10 crores.

Also, foreign enterprises with total income surpassing Rs. 10 crores will face a 5 cargo on their income duty liability.

Only companies with a total income of further than Rs. 10 crores would be eligible for borderline relief, which means that the income duty outstanding ( including cargo) on the advanced income can not be further than the quantum of income that exceeds Rs. 10 crores.

Frequently Asked Questions

Is it possible for an individual to seek borderline relief?

Yes, everyone who’s charged a cargo is eligible for a small quantum of relief.

 When will the cargo for individualities be enforced?

Cargo would be applied to individualities with a net total income of further than 50 lakhs.

Also Read,
NRI Status and Taxation
How to e-file Form 15G & upload form-15g online

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Types of Assessment

According to Income tax laws, there are five types of assessment which are:

1. Self-assessment

The Income Tax Department in India has many forms available for submitting an income tax return, which are used by the assessee to combine his income from various sources. The assessee adjusts his income for any losses, deductions, or exemptions he is entitled to during the fiscal year. To calculate the net income tax due, he subtracts the TDS and advance tax from the total income. Self-assessment is the term for this type of tax assessment.

2. Assessment under section 143(1) or Summary Assessment without calling the taxpayer is the second type of assessment

Summary assessment is one of the most common types of assessment, and it aims to cross-check the information provided by the assessee in his return with the information available to the Income Tax Department. This is a preliminary appraisal of the return of income wherein detailed scrutiny is not executed. The taxpayer’s total income is computed after adjusting for any arithmetical errors in the return, an inaccurate claim that appears plain from the information provided in the return, any disallowance of spending revealed in the audit report that is not taken into account in the return, and so on.

However, no such adjustment to an assessee’s total income will be made until he receives written or electronic notification of the adjustment. Within one year of the end of the financial year in which the tax return is filed, a summary assessment can be done.

3. Assessment under Section 143(3) or Scrutiny assessment

Scrutiny assessment is a proper assessment of an income tax return to ensure the accuracy and veracity of all claims, deductions, and other benefits claimed by the assessee in his return. The goal of this assessment is to make sure the assessee hasn’t understated his or her income, claimed excessive losses, or underpaid tax to the IRS in any way.

If the Assessing officer believes it is necessary to ensure that no income or expenditure has been understated or overstated, he will serve a notice on the assessee for the purpose of performing a scrutiny assessment, requiring him to attend his office or provide any proof in support of the income tax return. The notice must be delivered within six months after the end of the fiscal year in which the return is submitted. The deadline for completing a scrutiny assessment under Section 143(3) is 12 months from the end of the AY in which the income was originally assessable, according to Section 153.

4. Best judgment assessment or Assessment under section 144 is one of the types of  assessment.

This is an assessment made by the AO in line with his or her best judgement based on all available facts. In the following situations, Section 144 requires the AO to make a best judgement assessment:

• If the assessee fails to file the return by the due date specified in Section 139(1), or a belated return by the due date specified in Section 139(4), or a revised return by the due date specified in Section 139(5), the assessee will be penalized.
• If the assessee fails to comply with the provisions of a notice issued under Section 142(1) requiring him to produce specific information or books of accounts, the assessee would be penalised.
• If the assessee fails to comply with the special audit orders given under Section 142 (2A), the assessee would be penalised
• If the assessee fails to comply with the provisions of a notice issued under Section 143(2) in relation to a scrutiny assessment after filing the tax return,
• If the AO is not satisfied with the completeness of the assessee’s accounts or if he has not consistently adopted an accounting technique,

The AO must serve a show cause notice on the assessee before conducting a best judgment assessment. If he has already received a notice under section 142(1), this notice is not necessary. The time limit for completing an assessment under Section 144, according to Section 153, is 12 months from the end of the AY in which the income was first assessable.

5. Income escaping assessment or Assessment under section 147 is also one of the types of income tax assessment.

Income escaping assessment is one of the types of income tax assessments that the AO conducts if he has reasonable reasons to suspect that any income liable to tax under the Act has escaped assessment for a certain assessment year. The sole purpose of a Section 147 assessment is to bring any income that has previously escaped the original assessment into the tax net. In this context, “original assessment” refers to a review conducted under Sections 143(1), 143(3), 144, and 147.

The following are some cases of assessments that come under Section 147:

• The assessee fails to file his return of income for the previous year, despite the fact that his total income surpassed the maximum amount not subject to tax.
• The AO discovers that the assessee has understated his income or claimed an excessive loss, exemption, deduction, or allowance in his tax return, but no assessment has been made.
• The assessee has neglected to file a report with respect to any international transaction, as he was required to do under Section 92E.

The AO is required to issue a notice under Section 148 to the assessee in order to provide him with an opportunity to be heard when conducting an assessment under Section 147. Section 148 allows for the issuance of such a notice within four years after the end of the relevant assessment year.

The time period for completing a Section 147 order of assessment, reassessment, or re-computation is 9 months from the end of the financial year in which the notice under Section 148 was served, according to Section 153. In addition, if the Section 148 notice is served on or after April 1, 2019, the time limit for making this assessment is 12 months from the end of the financial year in which the Section 148 notice is served.

Conclusion

The procedure of the Income Tax Department examining a return of income is known as “assessment.” The AO conducts many types of assessments to ensure that taxpayers haven’t concealed any information or underpaid any taxes. There are times when the CBDT picks up an assessee’s return for an assessment based on parameters defined by the CBDT.

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Section 16 of the Income Tax Act of 1961 allows for a deduction from taxable income under the heading of “salaries.” It allows for basic deductions, entertainment allowances, and professional tax deductions. A salaried taxpayer can use this deduction to reduce the amount of taxable salary income that is subject to tax.

Furthermore, as a result of recent standard deduction revisions, the benefit of this section is now extended to a larger sum. Furthermore, there is no need to provide travel or medical costs, making it simple to file a claim.

We’ll go over each of the deductions under section 16 in this post, along with examples of how to calculate them.

Standard Deduction From Salary under section 16 (ia)

Section 16ia of the Income Tax Act allows for a standard deduction. Transport allowance of Rs 19200 and medical reimbursement of Rs 15000 were replaced by the standard deduction. Our Finance Minister, Arun Jaitley, announced it in the 2018 budget.

In lieu of transport allowance and medical reimbursement, the 2018 budget proposed a standard deduction of Rs 40,000. A taxpayer does not need to provide a bill or proof of expenditure to claim this Rs 40,000 deduction. It stipulates a one-time deduction of Rs 40,000.

The 40,000-rupee deduction was increased to 50,000-rupees in the Interim Budget of 2019. As a result, the deduction in FY 2018-19 was Rs 40,000, and it will be Rs 50,000 in FY 2019-20.

Pensioners can also take advantage of the standard deduction. The CBDT published a clarification about the standard deduction’s applicability to retirees. The pension that a taxpayer receives from his or her previous employer will be taxed under the heading of “salaries.” The deduction will be available to pensioners under section 16 because the pension received is taxed under the heading of “salaries.”

The amount of deduction available under section 16 for standard deduction is:

• Salary received

Or

• Rs 50000

Whichever one is the lowest

Remember that the standard deduction has nothing to do with the deduction under Section 80C or any other part of Chapter VIA.

Illustration on Calculation of Standard deduction

Entertainment Allowance Under Section 16 (ii)

The entertainment allowance is first included in the pay income before being deducted based on a few conditions. The allowance must be an entertainment allowance specifically granted by an employer to the taxpayer.

Entertainment Allowance for a Government Employee

The deduction applicable to employees of the federal and state governments is the least of the following:

1. 20% of the basic pay
2. 5000 rupees
3. The amount of entertainment allowance given throughout the fiscal year

To calculate the allowance, a taxpayer must meet the following requirements:

1. Salary shall not include any other allowances, benefits, or perquisites received from the employer. Essentially, the wage must be the gross amount earned before any extra benefits are taken into account.
2. Never take into account the actual amount spent from the employer’s entertainment budget.

Entertainment Allowance for a Non-Government Employee

Non-government employees are not eligible for the entertainment allowance deduction. The deduction is only available to employees of the federal or state governments. Furthermore, the deduction is not available to employees of local governments or statutory corporations.

Illustration on Calculation of deduction against Entertainment Allowance

Professional Tax or Tax on Employment Under Section 16 (iii)

Section 16iii of the Income Tax Act allows for a deduction for employment taxes. Section 16 allows a taxpayer to deduct the amount paid on account of a tax on employment or professional tax. The employment tax is allowed for in Article 276 (2) of the Constitution.

When computing the deductions against professional tax, keep the following points in mind:

1. The deduction can only be claimed in the fiscal year in which the professional tax is actually paid to the government.
2. The tax paid on behalf of the employee by the company is also deductible. The amount paid by the employer as professional tax will be included in the total remuneration initially as a condition. Later, under section 16, the same amount will be permitted as a deduction.
3. The deduction has no upper or lower limit under Section 16 of the Income Tax Act. The deduction is exclusively determined by the amount of professional tax paid. Any state government, however, cannot collect a professional tax of more than Rs 2500 per year. Only the tax paid is deductible, not the interest or late charge incurred as a result of the delay or nonpayment of professional tax.

Frequently Asked Questions

Can I take a deduction for entertainment allowance if I am not a government employee?

No, you cannot claim an entertainment allowance deduction. Only employees of the federal or state governments are eligible for the deduction.

Is it necessary for me to provide proof of expenses in order to claim the standard deduction?

Previously, you had to submit medical and travel expenses in order to claim a deduction. Your employer then evaluated the bills and approved the deduction. You do not need to submit any bills to claim a standard deduction, though. You will automatically receive the deduction without having to submit any bills.

Is it legal for my employer to decline to make a standard deduction?

No, the standard deduction must be taken into account when computing tax due, deducting TDS and submitting an income tax return.

When filing a tax return, how do you enter the standard deduction?

A taxpayer can file an ITR using either the ‘Download Utility’ or the ‘Prepare and Submit Online’ options. The details will be pre-filled in the Prepare and Submit Online mode; you must confirm the details before filing. You must enter the details and then submit the ITR in the ‘Download Utility’ option.

Read, also: How to calculate advance tax and when to deposit it?
Tax Planning Under Minimum Alternate Tax (MAT)

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Direct Tax Vivad se Vishwas (DTVSV) Scheme

The DTVSV scheme’s goal is to eliminate outstanding income tax litigation and earn timely money for the Indian government. Taxpayers benefit from this system because it gives them peace of mind, confidence, and time and resource savings. The following are the types of disputes covered by the Direct Tax Vivad Se Vishwas (DTVSV) scheme:

• Disputed tax
• Disputed penalty
• Disputed interest
• Disputed Fee
• Disputed Tax Deducted at Source (TDS) or tax collected at source (TCS)

According to prior guidelines, taxpayers who settle disputes under the DTVSV programme would be eligible for a full waiver of interest and penalties if they pay the entire amount of tax in dispute by 31.3.2020. After March 31, an additional 10% of the challenged tax, in addition to the tax liability, must be paid.

Period of DTVSV Scheme Extended – COVID 19

In light of the COVID 19 pandemic sweeping the country, Hon’ble Finance Minister Smt. Nirmala Sitharaman said that the DTVSV Scheme’s period for making payments without additional amounts has been extended until December 31st, allowing taxpayers to avoid paying the 10% additional disputed tax.

DTVSV Forms

To take advantage of direct tax dispute resolution, the taxpayer must complete five DTVSV Forms, as previously stated. The certificate will be issued by the Designated Authority, and you can purchase it online.

• DTVSV Form-1: The taxpayer must file a declaration in Form-1 and any applicable schedules under the DTVSV Scheme.
• DTVSV Form-2: In addition to Form-1, the applicant must file the undertaking in DTVSV Form-2.
• DTVSV Form 3: In Form 3, the Designated Authority will inform the taxpayer of the tax payable or refundable amount.
• DTVSV Form-4: The taxpayer must fill out Form-4 and include proof of withdrawal of any relevant appeal, writ, or arbitration for dispute settlement.
• DTVSV Form-5: In Form-5, the Designated Authority will issue an order to resolve the dispute completely and finally.

E-Filing of DTVSV Form

To create and submit the DTVSV Form, the applicant must first go to the Income Tax Department’s official website and then log in with their Permanent Account Number (or TAN, if applicable) and password.

Select the Vivad se Vishwas option and then Prepare and Submit DTVSV Forms after logging in to the portal. After logging in, the applicant will have access to Form 1 and Form 2 online for data submission and preparation.

Online Filing of DTVSV Form – 1

Select the Form 1 and Assessment year for Tax Deduction at Source cases after logging in to the portal. Then, from the drop-down option, select the file type (updated or original). The DTVSV form -1 comprises specified schedules, and applicants must file the applicable schedules and tables under the schedules with validation in order to submit the declaration. The candidate must fill out the information in the following five parts.

• • PART A – General Information
• • PART B – Dispute-Related Information
• • PART C – Tax Arrear-Related Information
• • PART D – Amount Payable-Related Information
• • PART E – Payments Against Tax Arrear-Related Payments

Online Filing of DTVSV Form – 2

As previously noted, the DTVSV can also be submitted electronically through the Income Tax Department’s official website. Fill out DTSVS Form-2 with the following information.

• The taxpayer’s designation
• PAN, Aadhaar, and TAN information

To continue, click the submit button after filling out the form.

To submit these forms, you must have a digital signature certificate or an electronic verification code.

Obtain an acknowledgment number

The applicant will receive an acknowledgment number after submitting forms 1 and 2.

Issue of Form – 3

Form 3 will be issued once the taxpayer’s declaration is recognized by the designated authority, and the assesses must pay the amount calculated within 15 days of receiving the certificate and must notify the designated authority of their payment.

Filing of Form – 4

In Form-4, the taxpayer must detail the payment, as well as provide proof of withdrawal of any appropriate appeal, writ, or arbitration for dispute settlement. After logging in to the portal, select Form 4 to have the following information auto-populated:

• In accordance with the certificate received in Form-3 from the designated authority (certificate number)
• Aadhaar Number and PAN/TAN
• Financial Year/Assessment Year

The applicant must give the following information about payments made:

• Basic Statistical Return Code of Bank
• Serial Number of Challan
• Amount (Rs)
• Date of Deposit (DD/MM/YYYY)

If an appeal, objections, writ petition, application, special leave petition, arbitration, mediation conciliation, or claim has been withdrawn, upload proof of withdrawal with number and forum after providing the facts.

After giving the date and time information, the applicant can submit the form.

Viewing Submitted Forms

The submitted DTVSV forms will be accessible to see and download after logging into the site. To access the submitted forms, select “View DTVSV Forms” after logging in.

Issue  of Order in Form -5

The Order for the Full and Final Settlement of the Dispute in Form-5 will be issued by the Designated Authority.

Read, also: Wealth Tax India: Who needs to pay and its history
Filing Form 10E is Mandatory to Claim Relief under Section 89(1)

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Taxpayers should file Form 10E if there is any change in taxation rules for the period to which the income relates. Change in taxation laws includes changes that occurred due to budget proposals, amendments, or changes in tax treaties. For example, if you receive arrears of salary, Form 10E can be used to calculate tax outflow on such arrears due to changes in taxation rules applicable in the year of receipt.

If it is not filed, relief under section 89(1) cannot be claimed. Form 10E can be used when tax outflow is increased due to changes in taxation rules. Form 10E should be filed with the return of income for the relevant assessment year within the time limit prescribed by law or extended by CBDT.

The latest update is as follows:

On 9th September, the CBDT released a circular extending the deadlines for certain direct tax obligations for AY 2021-22.

1. ITR Filing due to date extension:

i)The Income Tax Return filing deadline for taxpayers not being audited is extended from 30th September 2021 to 31st December 2021.

ii) The IRS’s deadline for submitting an ITIN application for Tax Audit cases is extended to February 15, 2022.

iii) The filing date for ITR has been extended until February 22.

iv)The due date for the ITR filing of a Belated or Revised Return for FY 20-21 is extended from December 31, 2021, to March 31, 2022.

1. Furnishing Audit Report:

i)The deadline to submit the audit report was postponed until January 15, 2022.

ii)The due date for submitting an audit report in transfer pricing cases has been extended to January 31, 2021. The Filing Deadline Extension is now available from Jan 31, 2021.:

i) Income Tax Return filing by taxpayers not covered under audit is extended from 30th Sep 21 to 31st Dec 21

ii) The due date for submitting an ITR filing in Tax audit instances is extended to February 15, 2022.

iii) ITR filing for transfer Pricing is extended to 28th Feb 22

iv) The due date for the ITR filing of a Belated or Revised Return for FY 20-21 is extended from December 31, 2021, to March 31, 2022.

Furnishing Audit Report:

i) The deadline to submit the audit report was extended to January 15, 2012.

ii)The deadline for submitting an audit report in transfer pricing cases has been extended to January 31st, 2022.

What Is Relief under Section 89(1)?

The tax rate is determined by your entire yearly revenue. If you have paid any prior year’s dues in the current year, you might be concerned about paying more taxes (usually tax rates have risen over time). You may benefit from Section 89(1) relief to save you money on taxes owing to delayed income payment under Rule 21A read with Rule 89(1). You are entitled to some tax reduction under Section 89(1) along with Rule 21A if you have received any portion of your salary in arrears or in advance, or if you received a family pension in arrears.

Income Tax Notice for Non-Filing of Form 10E

The Income Tax Department has made it necessary to submit form 10E if you wish to claim relief under Section 89(1) for the Financial Year 2014-15 (The Assessment Year 2015-16). Taxpayers who have received an income tax notice from the Income Tax Department stating that their relief u/s 89 has not been allowed in their case because they did not file form 10E have been informed that – The relief u/s 89 has not to be allowed in your case, as you did not submit Online form 10E. According to sec.89 of the Income Tax Act, it is necessary to provide Online form 10E

How to File Form 10E

Form 10E may be submitted online. The following are the stages for submitting Form 10E via the internet: –

• Login to https://incometaxindiaefiling.gov.in/ with your User ID and password along with the date of birth.
• After you have logged in, click on the tab named ‘e-file’ and select ‘Prepare & Submit Online Form (Other than ITR)’.
• On the next page, click on Form No. 10E and then click on submit.

After Form 10E has been submitted, you can see the confirmation number at the end of Form 10 E which will be quoted every time you log in to submit Form 10E.

Form 10E Form is mandatory to claim relief under Section 89(1) of the Income Tax Act. This will help you in claiming relief from any change in taxation rules, which may increase your tax outflow for a particular year. If you have questions about what form you need or how to file it, contact us today and we’ll be happy to walk you through each step!

Read, also: Details of EPF Form 10C
Tax Planning Under Minimum Alternate Tax

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Minimum Alternate Tax (MAT) – A Brief Introduction

The Income Tax Act imposes a Minimum Alternative Tax. The MAT concept was created to target firms that produce large profits and pay dividends to their shareholders, but pay no or little tax under the standard terms of the Income Tax Act by utilizing the many deductions and exemptions available.

However, since the implementation of MAT, businesses have been required to pay a specified percentage of their profits as Minimum Alternate Tax. MAT is applicable to all businesses, including international businesses. Section 115JB of the Income Tax Act is used to calculate MAT.

Every business shall pay the larger of the two taxes determined as follows:

1. Tax liability under the Income Tax Act’s normal provisions (tax rate 30% plus 4% Edu. cess plus surcharge) (if applicable)

Domestic corporations with a turnover or gross revenues of up to Rs. 400 crore has a tax liability of 25% + 4% cess and relevant surcharge under the normal provisions of the Income Tax Act.

2. Tax liability under the MAT provisions is outlined in Sec 115JB (the tax rate is 15% off Book Profits + 4% education cess plus a surcharge, if appropriate, beginning in AY 2020-21 (FY 2019-20)).

MAT rates were 18.5 percent prior to FY 2019-20.

How to calculate Minimum Alternate Tax (MAT)?

With effect from AY 2020-21, MAT is equal to 15% of Book profits (it was 18.5 percent previous to AY 2020-21). (Plus Surcharge and cess as applicable).

Book profit refers to the net profit displayed in the profit and loss account for the year, as adjusted for the following items:

Increases in Net Profit (If debited to the Profit and Loss Account)

1. Income tax paid or payable, if any, calculated according to the income tax act’s customary rules.
2. Any reserve is transferred.
3. Proposed or paid dividend
4. Provision for the failure of subsidiaries
5. Depreciation, including depreciation due to asset revaluation
6. Deferred tax amount/provision
7. Make preparation for unknown obligations, such as bad loans.
8. Amount of expense related to exempt income under sections 10,11, and 12 (excluding secs 10AA and 10B) (38) This means that MAT applies to income under section 10AA and long-term capital gains excluded under section 10(38). Any asset’s value is depreciated, and a provision is made for this.

Deductions from Net Profit (If credited to the Profit and Loss Account)

1. The amount is taken out of any reserves or provisions.
2. The amount of income that is subject to any of the provisions of sections 10, 11, and 12, with the exception of 10AA and 10(38).
3. Amount took from the revaluation reserve and credited to the profit and loss account for depreciation on asset revaluation.
4. In accordance with the books of account, the amount of loss carried forward or unabsorbed depreciation, whichever is less. Depreciation, on the other hand, is excluded from the loss. (Nothing shall be deducted if the loss pushed forward or unabsorbed depreciation is nil.)
5. A deferred Tax Amount is any amount that is credited to the profit and loss account.
6. The amount of depreciation that has been charged to the Profit and Loss Account (excluding the depreciation on revaluation of Assets)

What is Minimum Alternate Tax (MAT) Credit?

When a firm pays any amount of tax as MAT, it can claim a credit for the tax paid under section 115JAA.

Tax Credit Allowable: Tax paid according to the MAT formula — Income tax due under the standard provisions of the Income-tax Act of 1961.

The Department will not pay any interest on this tax credit.

For example, ABC Ltd has a taxable income of Rs 40 lakhs and book profits of Rs 75 lakhs for the fiscal year 2019-20, according to the standard rules of the Income Tax Act.

• The larger of the following two taxes will be due:

Rs. 30,00,000 multiplied by 30% plus 4% is Rs. 9,36,000

• The following is the tax due under the MAT provisions:

Rs 75,00,000 multiplied by 1518.5 percent plus 4% equals Rs 11,70,000.

• As a result, the corporation will owe Rs 11,70,000 in tax.

Rs 11,70,000 – Rs 9,36,000 = Rs 2,34,000 MAT Credit

Such tax credit may be carried forward for a period of 15 assessment years following the assessment year in which it became permissible.

This change will take effect in the 2018-19 academic year. Prior to this, MAT could only be carried forward for ten years.

For example, if an excess tax is paid in the fiscal year 2016-17, the credit for that tax can be carried forward to the fiscal year 2017-18. In a year when the tax becomes payable on the entire income in accordance with the Act’s customary rules, the MAT credit may be set off.
Set off is granted to the extent that the difference between the tax on total income under normal provisions and the tax that would have been due under MAT under section 115JB is less than the tax on total income under normal provisions. With the help of an illustration, the concept of MAT credit can be better understood.

So, with the help of an example, let’s try to comprehend it:

• Actual tax payable is greater than the MAT tax payable or the tax payable under normal rules.
• Only if the tax payable under regular provisions is larger than the tax payable under MAT, and only to the extent of the difference between the two, is MAT credit set-off allowed.
• Section 115JAA MAT Credit: Tax Payable Under MAT — Tax Payable Under Normal Provisions

Frequently Asked Questions

Who can benefit from MAT?

MAT is applicable to all businesses, including international businesses.

What is the rate of taxation under section 115JB?

From FY 2019-20, i.e. AY 2020-21, the tax rate will be 15%.

Is it possible to carry a tax credit forward?

Such tax credit may be carried forward for a period of 15 assessment years following the assessment year in which it became permissible.

Read, also: A Comprehensive Guide to Income Tax Slabs in India
Charitable Trusts and NGO – Income Tax Benefits
Income Tax Rebate Under Section 87A

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