Chapter 9: Assessment of Companies & Other Entities (MAT, AMT, Firms)
1. Minimum Alternate Tax (MAT Section 206 / 115JB)
Applicable to all companies if Income-tax payable on Total Income is less than 15% of Book Profit (9% for units in IFSC).
| Additions to Net Profit (if debited to P&L) | Deductions from Net Profit (if credited to P&L) |
|---|---|
| • Income-tax paid/payable, surcharge, HEC, dividend distribution tax. • Amounts transferred to any reserve. • Provisions for un-ascertained liabilities. • Provision for losses of subsidiary companies. • Dividends paid or proposed. • Expenditure relatable to exempt income u/s 10 (excl. 10AA). • Depreciation debited to P&L. |
• Amount withdrawn from any reserve or provision. • Incomes exempt u/s 10 (excl. 10AA). • Depreciation debited to P&L excluding depreciation on revaluation of assets. • Amount withdrawn from revaluation reserve (to extent of extra depreciation). • Brought forward loss OR unabsorbed depreciation as per books, whichever is lower. • Profits of sick industrial company. |
MAT Credit Rules (Section 115JAA):
$ ext{MAT Credit} = ext{Tax paid under MAT} - ext{Tax payable under normal provisions}$.
• Can be carried forward for 15 Assessment Years.
• Set-off in future year allowed up to difference between Normal Tax and MAT.
• MAT does NOT APPLY to companies opting for Section 115BAA (22%) or Section 115BAB (15%).
$ ext{MAT Credit} = ext{Tax paid under MAT} - ext{Tax payable under normal provisions}$.
• Can be carried forward for 15 Assessment Years.
• Set-off in future year allowed up to difference between Normal Tax and MAT.
• MAT does NOT APPLY to companies opting for Section 115BAA (22%) or Section 115BAB (15%).
2. Alternate Minimum Tax (AMT Section 227 / 115JC)
Applicable to all non-corporate assessees claiming deduction under Chapter VI-A (Part C - profit linked), Section 10AA, or Section 35AD, where Adjusted Total Income > ₹ 20 Lakhs.
AMT Calculation Steps:
$ ext{Adjusted Total Income (ATI)} = ext{Total Income} + ext{Deductions u/s 10AA} + ext{Deductions under VI-A (Part C)} + ext{Deductions u/s 35AD (less depr u/s 32)}$.
$ ext{AMT Payable} = \mathbf{18.5\%} imes ext{Adjusted Total Income (ATI)}$ (9% for units in IFSC) + Surcharge + 4% HEC.
• AMT does NOT APPLY to assessees opting for the Default Tax Regime u/s 115BAC / Sec 202.
$ ext{Adjusted Total Income (ATI)} = ext{Total Income} + ext{Deductions u/s 10AA} + ext{Deductions under VI-A (Part C)} + ext{Deductions u/s 35AD (less depr u/s 32)}$.
$ ext{AMT Payable} = \mathbf{18.5\%} imes ext{Adjusted Total Income (ATI)}$ (9% for units in IFSC) + Surcharge + 4% HEC.
• AMT does NOT APPLY to assessees opting for the Default Tax Regime u/s 115BAC / Sec 202.
3. Partnership Firms & LLPs: Section 40(b) Partner Remuneration
| Book Profit Slab | Maximum Permissible Remuneration u/s 40(b) |
|---|---|
| On first ₹ 3,00,000 of book profit, OR in case of loss | ₹ 1,50,000 OR 90% of Book Profit, whichever is MORE. |
| On the balance of Book Profit | 60% of Book Profit. |
Interest on Capital to Partners:
• Must be authorized by the Partnership Deed.
• Relates to period after deed execution.
• Capped at simple interest of 12% per annum. Any excess interest is disallowed in firm's hands!
• Must be authorized by the Partnership Deed.
• Relates to period after deed execution.
• Capped at simple interest of 12% per annum. Any excess interest is disallowed in firm's hands!
4. Domestic Corporate Tax Regimes Summary
| Corporate Scheme | Base Tax Rate | Surcharge | Effective Tax Rate | MAT Applicability |
|---|---|---|---|---|
| Section 115BAA (All domestic companies) | 22% | Flat 10% | 25.168% | Exempt from MAT |
| Section 115BAB (New manufacturing companies) | 15% | Flat 10% | 17.16% | Exempt from MAT |
| Normal Regime (Turnover $\le$ ₹ 400 Cr in PY) | 25% | 7% (> ₹ 1 Cr) / 12% (> ₹ 10 Cr) | 26% to 29.12% | Subject to MAT @ 15% |
| Normal Regime (Turnover > ₹ 400 Cr in PY) | 30% | 7% (> ₹ 1 Cr) / 12% (> ₹ 10 Cr) | 31.2% to 34.944% | Subject to MAT @ 15% |
5. High-Yield Exam Traps
Trap 1: Firm Remuneration must be to WORKING partners only!
Deduction u/s 40(b) is allowed ONLY for remuneration paid to working partners. Any salary/remuneration paid to a non-working/sleeping partner is 100% disallowed!
Deduction u/s 40(b) is allowed ONLY for remuneration paid to working partners. Any salary/remuneration paid to a non-working/sleeping partner is 100% disallowed!
Trap 2: Partner's Share of Profit is Exempt!
The share of profit of a partner from the firm is 100% EXEMPT in the partner's hands u/s 10(2A). Only interest (up to 12%) and remuneration (up to 40(b) limit) are taxable as PGBP in partner's hands!
The share of profit of a partner from the firm is 100% EXEMPT in the partner's hands u/s 10(2A). Only interest (up to 12%) and remuneration (up to 40(b) limit) are taxable as PGBP in partner's hands!