Profit as per profit and loss account in the current year. Income tax act 1961 section 115jb page 2 judgments. A2 starting point for computing book profits for ind as compliant companies shall be profit before other comprehensive income item number xiii in part 2 statement of profit and loss of division ii of schedule iii to the companies act, 20. Claimed as per accounts and under 115jb from year 1 to year 3. Provision of mat minimum alternate tax for payment of tax by certain companies section. Aug 15, 2015 for the purpose of calculating book profit under section 115jb of income tax act, 1961. Many a time, firms and companies avail all the benefits in tax laws and end up paying a paltry sum as tax or pay no tax at all, on account of excellent tax planning. Indian tribunal holds book profits not subject to transfer pricing. Book profit financial definition of book profit financial dictionary. Calculation of book profits for the purpose of mat section. Based on the matching principle of accountancy, only expenses debited to the profit and loss account that had direct and proximate nexus with the exempt income credited to the profit and loss account should have been. It is calculated under section 115jb of the income tax act. Book profit us 115jb to be reduced by exempted capital gain.
For computation of book profit, one may proceed as follows. The explanation 1iii to section 115jb of the act is limited and operates only for deciding the quantum and not methodology for setoff of the amount to be reduced from the net profit as per books in order to arrive at the book profit under section 115jb. The tribunal reasoned that section 115jb of the income tax act, which contains the mat provisions, is a selfcontained tax code and that only adjustments to book. Mat provisions require book profit off to the lower number. Nov 28, 2007 29 november 2007 for the purposes of section 115jb, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under subsection 2, as increased by a the amount of incometax paid or payable, and the provision therefor. As per section 115jb 2, book profit means net profit in the statement of profit.
Meaning of book profit as per explanation 1 to section 115jb2 book profit for the purposes of section 115jb means net profit as shown in the statement of profit and loss prepared in accordance with schedule iii to the companies act, 20 as increased and decreased by certain items prescribed in this regard. Taxpayers methodology to set off and carry forward. To compute book profit, on should take profit and loss account and make additions and deletions. No marginal relief, since the income does not exceed. Mat provisions us 115jb an exhaustive overview of landmark. Q3 as per explanation to section 115jb2c of the act, the convergence date is defined as the.
Section 115jb provides for certain adjustments for determining book profit, mainly for. Section 115jb, incometax act, 1961 2015 7special provision for payment of tax by certain companies. Minimum alternate tax mat us 115jb of income tax act, 1961. The minimum alternate tax mat on companies challenges and. This means long term capital gain exemption under section 1038 are subject to mat.
Book profit means the net profit as shown in the profit and loss account, as increased by the amount of incometax paid or payable, and the provision there for. The minimum alternate tax mat on companies challenges. If a company whose tax payable works out to less than 15% amended in finance act, 2009 from 10% of book profit then the company has to pay tax at 15% of book profit. Complexity in computing the book profit under mat provisions. Cbdt issues faqs on computation of book profit for levy of. Jul 06, 2017 therefore, even clause f of explanation to section 115jb which refers to those amounts which are debited to the profit and loss account, alone can be added to the book profit, cannot apply. Conundrum on brought forward loss treatment under mat. Calculation of book profits for the purpose of mat section 115jb.
Meaning of book profit as per explanation 1 to section 115jb2 book profit for the purposes of section 115jb means net profit as shown in the statement of profit and loss prepared in accordance with schedule iii to the companies act, 20 as increased and decreased by certain items prescribed in. Mat is calculated under section 115jb of the incometax act. The term book profit has been defined in the respective sections. It is the net profit shown in the profit and loss account for the previous year in question and as increased and decreased by certain items. Mat provisions require book profit to be adjusted against lower of brought forward unabsorbed loss and unabsorbed depreciation and. Cbdt issues faqs on computation of book profit for. As per explanation 1 to section 115jb2 book profit for the. The procedure for the computation of book profit as per. Mat minimum alternate tax 115jb income tax act, 1961. Step 2 adjustment to net profit to convert it into book profit which are given under explanation 1 to section 115jb2 book profit is arrived at after making specified adjustments to the profit as shown in the statement.
Transition amount means the amount or aggregate of the amount adjusted in other. Computation of book profits would be calculated as under a stepi. As per section 115jb, every taxpayer being a company is liable to pay mat, if the incometax including surcharge and cess payable on the total income, computed as per the provisions of the incometax act in respect of any year is less than 18. Book profit is defined in section 115jb of the act. Book profit a gain on an investment that has not yet been realized. Definition of book profit in the financial dictionary by free online english. Aug 29, 2016 advanced understanding minimum alternate tax concepts computation of book profits in most easiest manner by mr. Tribunals decision a bare reading of explanation 1iii to section 115jb of the act provides that while computing the book profits, the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of accounts, is required to be reduced. Q3 as per explanation to section 115jb 2c of the act, the convergence date is defined as the. The assessee did not offer the above said amount of rs.
Mat stands for minimum alternate tax, as per income tax act, 1962. Capital receipts and book profits mat no longer a self. Apr 06, 2011 explanation 1 to section 115jb of the act defines the word book profit to mean net profit as shown in the profit and loss account prepared as per section 115jb2 of the act, and as further increased by the amounts mentioned in clauses a to i upward adjustments and as reduced by amounts covered under clauses i to viii. Oct 10, 2009 should be followed while preparing pl ac for the purpose of computing book profit us 115 jb thus it is clear that under mat provisions ao normally takes the net profit as computed by the assessee and then makes the adjustments us 115jb. In case incometax payable by the company referred to at sl. Mat provisions require book profit to be adjusted against lower of brought forward unabsorbed loss and unabsorbed depreciation and not merely restrict the amount setoff to the lower number august 21, 2018 in brief in a recent ruling1 of the ahmedabad bench of the incometax appellate tribunal tribunal, an issue. Explanation 2 of section 115jb only define the meaning of. The submission of ld ar that tax includes surcharge and education cess as per explanation 2 of section 115jb is correct to the extent that explanation 2 was inserted to clarify the meaning of tax as contemplated in clause a of explanation 1 with respect to. As per explanation 1 to section 115jb2 book profit for the purposes of section 115jb means net profit as shown in the statement of profit. The profit and loss account prepared in accordance with regulatory act governing such companies, would be taken as basis for computing book profit under section 115jb.
Section 115jb of income tax act, 1961 sets out provision for calculation of minimum alternate tax. The minimum alternate tax mat on companies challenges and way forward 09. Tribunals decision a bare reading of explanation 1iii to section 115jb of the act provides that while computing the book profits, the amount of loss brought forward or unabsorbed depreciation, whichever is. Mat is calculated as 15% of the book profit of the tax assesse.
Step 2 adjustment to net profit to convert it into book profit which are given under explanation 1 to section 115jb 2 book profit is arrived at after making specified adjustments to the profit as shown in the statement of profit and loss so prepared. Section 115jb, incometax act, 1961 2015 7special provision for payment of tax by certain. Minimum alternate tax part v computation of book profits. Step 1 find out net profit before other comprehensive income oci as per statement of profit and loss of the company.
For the purposes of this section, book profit means the 61profit as shown in the 60statement of profit and loss for the relevant previous year prepared under subsection 2, as increased by a the amount of incometax paid or payable, and the provision therefor. Conundrum on brought forward loss treatment under mat taxsutra. Special provision for payment of tax by certain companies. Calculation of book profits for the purpose of matmaximum alternate tax section 115jb step 1 find out net profit before other comprehensive income oci as per statement of profit and loss of the company. Section 115jb of income tax act, 1961after budget 2016. As a result, there is the possibility that the book profit might be erased if the price goes back down.
A question arises whether the amounts, which can be added or reduced from the book profit as prescribed in section 115j, 115ja and section 115jb are exhaustive or illustrative. Step 2 adjustment to net profit to convert it into book profit which are given under explanation 1 to section 115jb 2 book profit is arrived at after making specified adjustments to the profit as shown in the statement. On 1 february 2017, the finance minister presented the finance bill, 2017 the bill which contained a number of. Oct 05, 2017 book profit simply means profit as computed in accordance with the provisions but before remuneration paid to partner.
The mat provisions begin with a nonobstante clause, and thus, are a sacrosanct and selfcontained code. It requires that every company shall pay tax on its book profits arrived by preparing its. That is, book profit occurs when the current price of a security is higher than the price the holder paid for it, but the holder still owns the security. First of all calculate tax as per normal provisions of income tax. Tribunals ruling the tribunal has explained its position through the following illustration. Book profit the cumulative book income plus any gain or loss on disposition of assets. Based on the matching principle of accountancy, only expenses debited to the profit and loss account that had direct and proximate nexus with the exempt income credited to the profit and loss account should have been added back while computing book profit under mat provisions. Calculation of mat credit applicability of minimum alternate tax. Calculation of book profits for the purpose of mat. This books profit meaning is provided in explanation 1 of subsection 2 of section 115jb.
In other words, the mat provisions in section 115jb create a deeming fiction, which deems book profit as the total income of a company for determining its tax liability. Section 115jb special provision for payment of tax by. Book profit under section 115jb the purpose of computing. Upholds capital gains exclusion from book profit calculation us 115jb, grants sec 54ec benefit itat. Minimum alternate tax mat section 115jb provision of mat minimum alternate tax for payment of tax by certain companies section 115jb book profit how to determine section 115jb analysing computation of total income and book profit. Whether unabsorbed depreciation includes unabsorbed. This explanation provides that book profit is nothing but is calculated after making some adjustments in the net profit as per the profit and loss account of the company. Minimum alternate tax mat us 115jb of income tax act. Minimum alternate tax part iii computation of book profits. The said explanation to section 115jb is silent and does not compel the. Meaning of assets, depreciation and relevant terms accounting standard 6 and 10 relating to depreciation and fixed assets defines various relevant terms as under. Step 2 adjustment to net profit to convert it into book profit which are given under explanation 1 to section 115jb2.
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