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Unit 11: Computation of Taxable Income of Companies

of book profit (if book profit exceeds ` 10 m), an amount equal to 18.54% of the book profit Notes
(if book profit does not exceed ` 10 m) or 19.9305% of book profit (if book profit exceeds ` 10 m)
is regarded as their tax liability.
The tax so paid could be carried forward and set off against normal tax (in excess of MAT for that
year) of future years up to ten years but from the financial year 2010–11 said carry forward shall
not apply to a limited liability partnership which has been converted from a private company or
unlisted public company.

Did u know? MAT is applicable in respect of Export Oriented Unit Schemes (EOU) but not
Special Economic Zones (SEZ).

Preparing the Annual Accounts

Every assessee, being a company, shall, for the purposes of this section, prepare its profit and
loss account for the relevant previous year in accordance with the provisions of Parts II and III of
Schedule VI of the Companies Act, 1956.
While preparing the annual accounts including profit and loss account,—
1. the accounting policies,
2. the accounting standards adopted for preparing such accounts including profit and loss
account,
3. the method and rates adopted for calculating the depreciation shall be the same as have
been adopted for the purpose of preparing such accounts and laid before the company at
its annual general meeting in accordance with the provisions of section 210 of the
Companies Act, 1956.

Calculating Book Profit

For the purposes of this section, “book profit” means the net profit as shown in the profit and
loss account for the relevant previous year, as
Increased by the following amounts debited to Profit and Loss Account:

1. Income-tax paid or payable, and the provision thereof, including
a. any tax on distributed profits under section 115-O or on distributed income under
section 115R,

b. any interest charged under this Act,
c. surcharge, if any, as levied by the Central Acts from time to time,
d. education Cess on income-tax, if any, as levied by the Central Acts from time to
time; and
e. secondary and Higher Education Cess on income-tax, if any, as levied by the Central
Acts from time to time.

2. Transfer to Reserves (Other than Section 33AC – w.e.f. AY 2003–2004)
3. Amount set aside to meet unascertained liabilities,
4. Provision for losses of Subsidiaries,
5. Dividends Proposed or Paid,

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