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The Finance Ministry has withdrawn its proposal to bring life insurance companies under the Minimum Alternative Tax (MAT) regime.
Had this provision been adopted by Parliament, life insurance companies would have had to pay MAT at the rate of 18.5 per cent. However, the existing provision prescribes income-tax to be payable at the rate of 12.5 per cent and that too after accumulated loss is wiped out. This, with the amendment in the Finance Bill 2012, will continue.
The Finance Minister, Mr Pranab Mukherjee, in a list of amendments to the Finance Bill, said that the provision (amendment to section 115JB of the Income-Tax Act) will not apply to any income accruing or arising to a company from life insurance business.
Better cash flows
Mr Sunil Jain, Partner, J Sagar Associates, says, “Removal of MAT on income from life insurance business will help players plan their cash flows better given that MAT does impact their cash flows. A positive news for a sector awaiting increase in limits of FDI for years.”
As per Section 115JB of the Income-Tax Act, every company is required to prepare its accounts as per Schedule VI of the Companies Act, 1956. Accordingly, the Section prescribes liability for a company to pay MAT of 18.5 per cent of its book profit in case tax on its total income computed under the provisions of the Act is less than the MAT liability.
Book profit for this purpose is computed by making certain adjustments to the profit disclosed in the profit and loss account prepared by the company in accordance with the Companies Act, 1956.
However, these are not applicable on certain companies such as insurance, banking or electricity companies. These companies are required to prepare their profit and loss accounts as prescribed by their regulators.
For others…
Doing away with the amendment will be applicable only to life insurance companies. Banking, electricity and non-life insurance companies will have an option to prepare the profit and loss account for the financial year ended on or before March 31, 2012, either in accordance with Schedule VI of the Companies Act, 1956, or in accordance with the provisions of the respective Act governing such companies for the purpose of MAT computation.
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