tax bill: Typo in tax bill? Bill says lower MAT not this year

A typo is believed to have crept into the amendment Bill to cut corporate tax. The error comes across as a setback for companies which had declared a higher profit in the quarter ended September 30, 2019 on the basis of a lower Minimum Alternate Tax (MAT) announced in the Ordinance moved a few months ago.

In order to enable Indian manufacturers become competitive, the government had introduced the Ordinance that comprised of three tax measures: first, new manufacturing companies set up after October 1, 2019 will enjoy a lower income tax of 15% and will be spared of MAT; second, existing companies which claim no deduction or exemption will pay an income tax of 22% (which works out to 25.17% including cess and surcharge) and no MAT will be applicable on them; third, companies that continue to claim exemptions and deductions will have to pay a lower of MAT of 15 as against 18.5%.

However, while the Ordinance said that the lower MAT will be effective immediately, the Bill said the reduced MAT will come into effect from next financial year.

“This may have happened inadvertently and we feel the government will correct it. Companies have done their planning based on lower MAT. These are companies that have not opted for Section 115BAA and pay MAT at reduced rate and shown higher post tax profit in September 2019. If the Bill is not revised, these companies will have to make good the shortfall in tax and pay interest,” said senior chartered accountant Dilip Lakhani. Such companies are primarily those set up in SEZ, running power plants and infrastructure facilities, he said.

The Ordinance in September had reduced the MAT rate from 18.5% to 15% for the “previous year relevant to the assessment year commencing on or after 1st day of April 2020’ (i.e. FY 2019-20). According to the Bill, this will apply to “the previous year commencing on or after the 1st day of April 2020’ (i.e. FY 2020-21).

“Thus, there appears to be a one year deferral in the MAT rate reduction.. This change is not mentioned in the Statement of Objects and Reasons that lists other changes made in the provisions introduced by the Ordinance,” said Hitesh D. Gajaria, Partner and Co-Head of Tax, KPMG India

The new Section 115 BAA was inserted in the Income Tax Act to slash corporate tax rate for existing companies to 22%. Existing companies have an option to avail this lower rate if they are willing to forego existing tax deductions. Simultaneously, section 115JB, dealing with MAT was also amended to state that that MAT provisions shall not apply to a company which exercises the option to be governed under the lower tax regime provided in Section 115 BAA.