MAT-ter of time: Credit to be phased out

The Budget proposes an overhaul of the Minimum Alternate Tax (MAT) framework for companies, including a cut in MAT rate to 14% from 15% and a move to make MAT a final tax under the old corporate tax regime. The rate under the old regime is 25-30% depending on turnover and various deductions are allowed. The new regime offers a lower rate of 15% with no deductions.

Currently, companies opting for the old regime pay MAT on book profits if it exceeds their normal income-tax liability, with the excess eligible to be carried forward as MAT credit for up to 15 years. Govt now plans to discontinue fresh MAT credit in the old regime, even as it lowers the MAT rate. Going forward, MAT paid under the old regime will be treated as final tax, with no new MAT credit allowed.




However, limited relief is being provided under the new regime. Domestic companies opting for it will be allowed to set off MAT credit up to 25% of tax liability, while foreign companies will be permitted to adjust MAT credit to the extent of the difference between normal tax and MAT in years where regular tax exceeds MAT. Ameet Patel, partner, Manohar Chowdhry & Associates, said the amendments appear to be a step towards forcing companies to go under the “new regime” with the probable aim of doing away with the old one.

“MAT mechanism is available only in the old regime as of now. The proposed amendment allows carry forward and set off of the MAT credit from the old regime into the new regime, subject to conditions... cap of maximum period of carry forward and set off of 15 years is to be counted from initial year in which such MAT credit was carried forward. This promotes transition,” said Deepak Joshi, Supreme Court advocate.