Deferred Tax On Mat Credit

Corporate bookkeepers debit and credit deferred tax specific accounts depending on the transaction.

Deferred tax on mat credit. Minimum alternative tax is payable under the income tax act. Whether mat credit is a deferred tax asset 4. The concept of mat was introduced to target those companies that make huge profits and pay the dividend to their shareholders but pay no minimal tax under the normal provisions of the income tax act by taking advantage of the various deductions and exemptions allowed under the act. Whether mat credit can be considered as a deferred tax asset per as 22.

Section 115jb levies minimum alternate tax mat at 10 of book profits plus surcharge and cess thereon if such tax is higher than the tax payable under the normal provisions of the act. Mat credit is not a deferred tax asset as per as 22 on accounting for taxes on income issued by icai deferred tax liability or deferred tax asset arises on account of timing differences i e. In most countries if you made a loss last year you can pay less tax this year on your profits. A tax credit scheme is introduced by which mat paid can be carried forward for set off against regular tax payable during the subsequent fifteen years period subject to certain conditions as under when a company pays tax under mat the tax credit earned by it shall be an amount which is the difference between the amount payable under mat and.

In this context the following definitions given in as 22 are noted. 2 when ur income is less as per income tax act than the income as per companies act deferred tax liability arises. 3 for provisions of mat refer sec 115jb of the it act 1961. 11 april 2008 1 when ur income is more as per income tax act than the income as per companies act deferred tax asset arises.

The differences between taxable income and accounting income for a period that originate in one period and are capable of reversal in one or more subsequent periods. In the bucket marked deferred tax are timing differences tax losses and tax credits. Deferred taxes result from temporary differences between the book value of a company s assets and liabilities and their tax worth. Mat a brief introduction.

They also may come from timing differences between the recognition of gains and losses in the. Similarly a tax credit to pay less tax may be given by the government as an incentive rather than a cash grant. The treatment of deferred tax charge in determining the tax liability under the special provisions of section 115jb of the income tax act is one such case. Under accounting standard as 22 discussed above though mat credit is not a deferred tax asset an expectation regarding future economic benefit arises in the form of the adjustment of the future income tax liability that arises within a specified time period.

As per as 22 deferred tax assets and liability arise due to the difference between book income taxable income and do not rise on account of tax expense itself.