Reduced Corporate tax rate - Issues on availability of MAT credit
Published: Sep 24, 2019
By Ravindra Agrawal
THE Finance Minister has made the welcome change of reduction in corporate tax rate to 22% (plus surcharge and cess) subject to conditions, vide The Taxation Laws (Amendment) Ordinance 2019. This relief is provided by way of insertion of a new Section 115BAA in the Income-tax Act, 1961. Simultaneously, MAT provisions under Section 115JB has been amended by insertion of Section 115JB(5A) which provides that MAT provisions shall not apply to a person who has exercised the option of 22% tax under section 115BAA.
Questions are being raised about the eligibility of MAT credit, if any, of the past years in case of such companies who are exercising the option of 22% tax under Section 115BAA. While we await for clarification from the Government, the following seems to be the better view on the issues:
- Whether MAT credit of the past years is available for set off to companies exercising the option of 22% tax under Section 115BAA?
It may be noted in this context, that MAT credit is allowed by way of provisions of Section 115JAA of the Income-tax Act, 1961. While an amendment has been made in Section 115JB that the provisions shall not apply to a who has exercised the option under section 115BAA; no such amendment has been made in Section 115JAA. Therefore, the better view is that MAT credit should continue to be available even to companies who would exercise the option of 22% tax under Section 115BAA.
There is also a school of thought that the computation mechanism of calculating MAT credit fails in case of companies opting for Section 115BAA and therefore no MAT credit is available. In the view of the author, this argument, however, seems to have very low strength.
- In case MAT credit is available for set off to companies exercising the option of 22% tax under Section 115BAA, then what is the extent to which such MAT credit would be available in a particular year?
Sub-section (6) of Section 115JAA currently provides that set off of MAT credit shall be allowed for any assessment year to the extent of the difference between the normal tax on total income and the tax which would have been payable under the provisions of Section 115JB(1) for that assessment year.
As discussed above, no amendment has been made in Section 115JAA; whereas Section 115JB has been amended by inserting Sub-section (5A) which provides that MAT provisions shall not apply to a person who has exercised the option under section 115BAA.
Two school of thoughts are presently prevalent in this regard:
A) MAT credit is available fully upto the normal tax payable since no MAT is applicable to companies opting for Section 115BAA. In other words, MAT is zero and the difference between normal tax and MAT would be normal tax itself.
B) MAT credit is available upto the difference between the normal tax payable and MAT that would have been payable had the MAT provisions been applicable to the company (even though the MAT provision is not actually applicable).
Both the above school of thoughts has arguments in its favour. The author is of the view that B) above is the better view since the provisions of Section 115JAA(6) refers to MAT that would have been payable under Section 115JB(1). Further, while Section 115JB has been amended by insertion of Sub-section 115JB(5A), there is no direct amendment made in Section 115JB(1). In other words, though MAT provisions are not applicable, for the purpose of computing the extent of MAT credit available in a year, it needs to be hypothetically calculated as to what is the MAT that would have been payable and the difference of normal tax and such MAT amount can be claimed as MAT credit in a year.
A clarification on the above issues is awaited from the Government based on the extent of relief which they intend to provide.
(The author is CA, CS, LLB, Tax Partner at SGCO & Co. LLP, ravindra.agrawal@sgco.co.in, The views expressed are strictly personal.)
