Deferred Tax On Mat Credit

The concept of mat was introduced to target those companies that make huge profits and pay the dividend to their shareholders but pay no minimal tax under the normal provisions of the income tax act by taking advantage of the various deductions and exemptions allowed under the act.

Deferred tax on mat credit.

They also may come from timing differences between the recognition of gains and losses in the. As per as 22 deferred tax assets and liability arise due to the difference between book income taxable income and do not rise on account of tax expense itself. An issue has been raised whether the mat credit can be considered as a deferred tax asset within the meaning of accounting standard as 22 accounting for taxes on income issued by the institute of chartered accountants of india. Corporate bookkeepers debit and credit deferred tax specific accounts depending on the transaction.

Whether mat credit is a deferred tax asset 4. Mat credit is not a deferred tax asset as per as 22 on accounting for taxes on income issued by icai deferred tax liability or deferred tax asset arises on account of timing differences i e. The differences between taxable income and accounting income for a period that originate in one period and are capable of reversal in one or more subsequent periods. In this context the following definitions given in as 22 are noted.

11 april 2008 1 when ur income is more as per income tax act than the income as per companies act deferred tax asset arises. In most countries if you made a loss last year you can pay less tax this year on your profits. Mat does not give rise to any difference between book income and taxable income. Under accounting standard as 22 discussed above though mat credit is not a deferred tax asset an expectation regarding future economic benefit arises in the form of the adjustment of the future income tax liability that arises within a specified time period.

Mat a brief introduction. Section 115jb levies minimum alternate tax mat at 10 of book profits plus surcharge and cess thereon if such tax is higher than the tax payable under the normal provisions of the act. Minimum alternative tax is payable under the income tax act. 2 whether mat credit can be considered as an asset.

Whether mat credit can be considered as a deferred tax asset per as 22. Similarly a tax credit to pay less tax may be given by the government as an incentive rather than a cash grant. Deferred taxes result from temporary differences between the book value of a company s assets and liabilities and their tax worth. The treatment of deferred tax charge in determining the tax liability under the special provisions of section 115jb of the income tax act is one such case.

3 for provisions of mat refer sec 115jb of the it act 1961.