• Tax planning for MAT paying company

Company is into manufacturing sector and is paying tax under MAT provisions. Time to time company make investment in debt mutual funds (Growth option) out of surplus funds. While book profit is earned on transfer of such mutual fund units but no capital gains arose on account of indexation benefit at the time of sale. 


Is there a mechanism to reduce MAT liability by excluding such mutual fund income from Book Profits considering that under normal tax provisions there is eventually a capital loss?
Asked 4 years ago in Income Tax from Delhi, Delhi

Perhaps you can explore the possibility of investment in tax free bonds, as the income exempt u/s 10 will not be considered for the purpose of computation of book profits u/s 115JB of Income Tax Act. Otherwise, there seems to be no possibility of excluding mutual fund income from book profits even though under normal tax provisions there is eventually a capital loss.

It may be appreciated that the very purpose of introducing MAT is to reduce the gap between the tax liability as per computation of income as per the provisions of Income Tax Act and at the same time having huge book profits that do not suffer any tax liability.

B Vijaya Kumar
CA, Hyderabad
891 Answers
67 Consultations

5.0 on 5.0

In normal circumstances the MAT liability cant be reduced as its the bear minimum one has to pay. However if the Co has, inter alia, accumulated losses then the same can be adjusted against the book profits consequently lower impact of the MAT.

Rajesh Kabra
CA, Thane
9 Answers
1 Consultation

4.3 on 5.0

As per the explanation 1 to Section 115JB, "Book Profts" means the net profits as shown in the Profit and Loss A/c so prepared under the provisions of Section 115JB(2) (ie. the Book Profits as the Annaul Financial Statements laid before the AGM). Since while computing such Book Profts no benefit of indexation is provided under Schedule III of Companies Act, 2013. Therefore, MAT laibilty can not be reduced using Indexation of COA.

Deepak Rathore
CA, New Delhi
31 Answers
5 Consultations

4.3 on 5.0

can you elaborate your question further

Shyam Sunder Modani
CA, Hyderabad
1408 Answers
110 Consultations

5.0 on 5.0

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