Deferred Tax On Mat Credit

Mat does not give rise to any difference between book income and taxable income.

Deferred tax on mat credit.

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. They also may come from timing differences between the recognition of gains and losses in the. 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. Deferred taxes result from temporary differences between the book value of a company s assets and liabilities and their tax worth.

Whether mat credit is a deferred tax asset 4. 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. Whether mat credit can be considered as a deferred tax asset per as 22. An issue has been raised whether the mat credit can be considered as a deferred tax asset within the meaning of accounting standard as 22 accounting for taxes on income issued by the institute of chartered accountants of india.

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

Minimum alternative tax is payable under the income tax act. 2 whether mat credit can be considered as an asset. 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.

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. In the bucket marked deferred tax are timing differences tax losses and tax credits. Mat a brief introduction. 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.

Similarly a tax credit to pay less tax may be given by the government as an incentive rather than a cash grant.