No MAT credit for firms opting for lower tax: FinMin

Our Bureau New Delhi | Updated on October 02, 2019

The Finance Ministry on Wednesday made it clear that companies opting for a lower tax of 22 per cent will not be eligible for accumulated additional depreciation and Minimum Alternative Tax (MAT) credit.

On September 20, Finance Minister Nirmala Sitharaman had announced the lowering of the maximum corporate tax rate to 22 per cent from the earlier 30 per cent. An ordinance was promulgated to make this cut effective from the current financial year (assessment year 2020-21).

The ordinance prescribed: “A domestic company shall, at its option, pay tax at 22 per cent for any previous year relevant to the Assessment Year beginning on or after April 1, 2020, subject to certain conditions, including that the total income should be computed without claiming any deduction or exemption.” The provision related to MAT was also amended.

Corporates sought clarification on two issues — the allowability of brought-forward loss on account of additional depreciation and the allowability of brought-forward MAT credit.

On the first issue, the Central Board of Direct Taxes (CBDT), the apex policy making body for income-tax, said that based on the insertion of a new section in the tax law, the total income will be computed without claiming any deduction such as accumulated additional depreciation.

It means, if a company opts for a lower tax, it will not be allowed to claim set-off for any brought-forward loss on account of additional depreciation.

No time-frame

However, there is one relaxation. Since there is no time-frame set for opting for a lower tax, a company can first set off the losses it accumulated and then go for the lower tax. The same will also be valid for accumulated MAT credit.

The tax department said that since the provision of MAT is not applicable to the companies opting for a lower tax, the accumulated tax credit of MAT paid will also not be available to it.

According to Rohinton Sidhwa, Partner at Deloitte India, the circular clarifies an important aspect — whether, at the time of the switch, a one-time write-off of MAT credit will be triggered or not. The circular now confirms that it will.

This could be a huge cost to some companies which will now perhaps consider continuing under the old regime for the time being. This was perhaps done to minimise the costs to the exchequer for the transition.

In favour of new investors

“Overall, the new changes are heavily weighed in favour of new companies and new investors. The one-time transition costs, requirement for fresh investments and other hurdles posed for existing taxpayers are significant enough to dent the benefits intended in the original announcement,” Sidhwa said.

Published on October 02, 2019

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