MAT Credit
MAT credit arises when a company’s tax liability under Minimum Alternate Tax (MAT) exceeds the tax liability under normal provisions of the Income-tax Act. The excess amount is treated as MAT credit, which can be carried forward for up to 15 assessment years and adjusted against future tax liabilities under normal provisions.
Key Provisions
- a)When Does MAT Credit Arise?
o MAT credit is the excess of MAT liability over tax liability calculated under normal provisions.
o Formula: MAT Credit = MAT liability – Normal tax liability (including surcharge and cess).
o Example: If the MAT liability is Rs. 1.5 crore, and the normal tax liability is Rs. 1 crore, the MAT credit is Rs. 0.5 crore.
- b)Carry Forward of MAT Credit
o MAT credit can be carried forward for 15 years (from AY 2018-19 onward).
o Adjustments occur if normal tax liability changes due to assessment or appellate orders.
- c)Exceptions relating to carry forward of MAT Credit
o Foreign Tax Credit (FTC): MAT credit cannot include the difference between the FTC allowed under MAT and the FTC allowed under normal provisions.
o Conversion into LLP: MAT credit lapses upon conversion of a private/unlisted public company into an LLP.
o Companies Opting for Section 115BAA or 115BAB: Companies choosing concessional tax rates under Section 115BAA or 115BAB cannot carry forward or set off unused MAT credit.
- d)Utilisation of MAT Credit
o MAT credit is utilised when normal tax liability exceeds MAT liability.
o Formula:
MAT Credit Utilised = Normal tax liability – MAT liability.
o Unutilized MAT credit after 15 years is forfeited.