Cos opt­ing for lower tax can’t set off built-up MAT credit

The Times of India (New Delhi edition) - - Times Global - TIMES NEWS NET­WORK

Mum­bai: A cir­cu­lar is­sued by the Cen­tral Board of Di­rect Taxes (CBDT) on Wed­nes­day dashed the hopes of those com­pa­nies who wished to opt for the lower head­line cor­po­rate tax rate of 22% and also claim set-off of ac­cu­mu­lated min­i­mum al­ter­nate tax (MAT) credit against their tax li­a­bil­i­ties. CBDT has clar­i­fied that such a set-off will not be avail­able.

CBDT also stated that the brought-for­ward losses on ac­count of ‘unabsorbed ad­di­tional de­pre­ci­a­tion’ will not be avail­able for set-off for those com­pa­nies that opt for the lower tax rate of 22% (ef­fec­tive tax rate of 25.17%).

The lower rate was in­tro­duced by way of an or­di­nance is­sued on Septem­ber 20. Com­pa­nies were re­quired to pay MAT if their tax li­a­bil­ity was less than 18.5% of book prof­its.

The or­di­nance re­duced this rate to 15%. Typ­i­cally, com­pa­nies which made heavy in­vest­ments and availed of sig­nif­i­cant tax de­pre­ci­a­tion fell within the MAT am­bit. In sim­ple terms, the MAT credit earned is the dif­fer­ence be­tween the amount paid un­der MAT and the reg­u­lar tax. This was al­lowed to be car­ried for­ward and ad­justed against fu­ture tax li­a­bil­i­ties over a pe­riod of 15 years.

“If carry for­ward and set-off of MAT credit was not in­tended to have been al­lowed un­der the new lower tax rate regime, it would have been best to have this is­sue ad­dressed by an ex­plicit amend­ment in the or­di­nance it­self,” said Hitesh Ga­jaria, co-head (tax) at KPMG In­dia. “The CBDT cir­cu­lar is bind­ing on the I-T depart­ment but not on all tax­pay­ers, es­pe­cially when they may have a dif­fer­ent in­ter­pre­ta­tion of the law,” he ex­plains.

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