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