Page 125 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes 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 profi t 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 Profi t.

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.
5.3 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 profi ts
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 for interest
payable for non-payment or delayed payment of additional tax by domestic companies. Section
115-Q is about when company is deemed to be in default. The concept of tax on distributed
profits of domestic companies is further explained in detail in Unit number 9.

5.3.1 Basis of Charge

The Dividend Distribution Tax or DDT is in addition to income tax paid by company is:
1. applicable only on domestic companies;
2. charged on amount declared, distributed or paid by a domestic company;

3. applicable on interim and fi nal dividend;

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