TaxTMI 
TaxTMI 
TaxTMI 
Whether a company can appear to have 100% income-tax exemption under normal provisions yet still be required to pay Minimum Alternate Tax (MAT).
Applicable Law / Notification / Circular
- Section 115JB, Income-tax Act, 1961 – Levy of Minimum Alternate Tax
- Section 10, Chapter VI-A – Exempt incomes and deductions under normal provisions
- CBDT Circular No. 13/2001 – Objective of MAT
- Section 115JAA – MAT Credit entitlement
Answer
Yes. A company can legitimately enjoy 100% exemption or deductions under normal income-tax provisions and still be liable to pay MAT, because MAT is calculated not on taxable income, but on “book profit” as per financial statements.
Detailed Explanation (Why This Happens)
1. Two Parallel Tax Calculations
Companies compute tax under two systems:
(A) Normal Income-tax Provisions
Taxable Income =
Book Profit
– Exempt incomes (Section 10)
– Deductions (80-IA,80JJAA, etc.)
– Depreciation (as per IT Act)
If deductions/exemptions wipe out income Tax = NIL
(B) MAT under Section 115JB
Tax = 15% of Book Profit (plus surcharge & cess)
Book Profit =
Net profit as per Companies Act P&L
± Specified adjustments only
Normal exemptions & deductions are ignored unless specifically allowed under 115JB.
2. Common Scenarios Where This Occurs
Situation | Normal Tax | MAT |
|---|---|---|
SEZ Unit claiming 100% exemption (Section 10AA) | NIL | Payable |
Heavy depreciation under IT Act | NIL | Payable |
80-IA / infrastructure deduction | NIL | Payable |
Startup losses set-off | NIL | Payable |
Agricultural income / capital subsidies | NIL | Payable |
3. MAT Rate (FY 2024–25)
- 15% of Book Profit
- Plus surcharge (if applicable)
- Plus 4% Health & Education Cess
4. MAT Credit – Not a Permanent Loss
If MAT > Normal Tax:
- Excess MAT becomes MAT Credit
- Can be carried forward for 15 assessment years
- Set off when normal tax exceeds MAT in future years
- Section 115JAA
Important Clarification
MAT is not a penalty for exemptions
It is a minimum contribution mechanism ensuring companies with accounting profits pay at least some tax.
Caveats & When Human Review Is Needed
- MAT adjustments are technical and litigation-prone
- Book profit computation errors can cause excess tax
- MAT applicability differs for foreign companies, IFSC units, shipping companies
Consult a CA if:
- MAT liability is high
- Large exempt income involved
- Transitioning out of tax holiday period
Action Plan
- Recompute Book Profit strictly as per Section 115JB
- Check eligibility for MAT Credit (115JAA)
- Forecast future normal tax to utilize MAT credit
- Review P&L for disallowable expenses under MAT
- Obtain CA review before finalizing ITR-6