Page 322 - DCOM301_INCOME_TAX_LAWS_I

Unit 11: Computation of Taxable Income of Companies

In the assessment year when regular tax becomes payable, the difference between the Notes
regular tax and the tax computed under MAT for that year will be set off against the MAT
credit available.

Procedure for Computation of MAT under Section 115JB

The provisions of section 115JB provide for working out the income-tax payable as MAT on a
deeming basis. The MAT tax liability under section 115JB can be worked out by undergoing the
following steps:
1. Compute the total income of the company ignoring the provisions of under Section 115JB.
2. Compute the income-tax payable on total income.
3. Work out the Book Profit under the provisions of section 115JB.

4. Calculate 10 per cent of book profit as per provisions of section 115JB.
5. MAT tax liability which would be the tax payable if it is more than the amount of tax
worked.

Example: AB Pvt. Ltd has a tax liability on its normal taxable income of ` 3 lakhs.
AB Pvt. Ltd. has book profit of ` 20 Lakhs as computed under section 115JB.

Therefore as per section 115JB, tax on the book profit would be ` 3.70 Lakhs.
Hence, AB Pvt. Ltd., has to pay tax MAT (i.e., ` 3.70 Lakhs), since the normal tax liability
(` 3.00 Lakhs) is less than 18.5% of the Book Profit.

Self Assessment

Fill in the blanks:
7. Companies who had book profits as per their profit and loss account but are not paying
any tax because income computed as per provisions of the income tax act is either nil or
negative or insignificant are referred to as ……………..
8. ………………is levied on companies as per section 115JB of the Indian Income Tax Act,
1961.
9. MAT is applicable in respect of Export Oriented Unit Schemes (EOU) but not
………………….

10. ………………..means the net profit as shown in the profit and loss account for the relevant
previous year.
11. A ………………….is introduced by which MAT paid can be carried forward for set-off
against regular tax payable during the subsequent five year period subject to certain
conditions.

11.3 Tax on Distributed Profits of Domestic Company

It must be noted that in India the treatment of tax on distributed profits of domestic companies
is dealt in by Chapter XIID which contains a special provision relating to tax on distributed
profits of domestic companies. This has only three sections, namely section 115 O, which is a
charging section and also prescribes the period, the rate of additional tax, which is payable, and
time and manner of payment etc. by company on dividend distributed. Section 115-P provides

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