To mat credit entitlement account c at the time of writing down of mat credit entitlement. The asset may be reflected as mat credit entitlement. The following entries are relevant in this context. Mat credit an overview of its rationale and impact caclubindia. A tax credit scheme is introduced by which mat paid can be carried forward for setoff against regular tax payable during the subsequent fifteen years period subject to certain conditions, as under. Icai is established under the chartered accountants act, 1949 act no. Make a provision towards income tax based on mat payable and debit mat credit entitlement which is to. Minimum alternative tax mat and its computation of book profit and mat credit under section 115jb of income tax act. If in any year the company pays liability as per mat, then it is entitled to claim credit of mat paid over and above.
Under the provisions of the minimum alternate tax act, as per section 115jb, every company domestic or foreign is required to. Minimum alternate tax mat check credits, calculation. The following computations will be made, ignoring the provisions of section 115jb mat, in this regard. Since the introduction of mat, several changes have been introduced in the provisions of mat. While availing the mat credit, the following entry is to be passed. In the year of setoff of credit, the amount of credit availed should be shown as a deduction from the provision for taxation on the liabilities side of the balance sheet.
Companies find various loopholes to avoid paying income tax by using several exemptions. While writing down the carrying amount of mat credit entitlement, the following entry is to be passed. For the account provision for income tax in the credit column, i have put the tax amount. 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. The mat credit may however, be shown separately as mat credit entitlement account. They do so by showing the mat credit as mat credit entitlement to the credit of the income and expenditure amount. Accounting and provisions of minimum alternate tax mat. Minimum alternate tax mat is a tax payable by companies and falls under the indirect tax category. The asset may be reflected as to mat credit entitlement in the books of the company. Common errors in the presentation of the financial. 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 the normal tax. To profit and loss account b at the time of availment of mat credit. Icai the institute of chartered accountants of india set up by an act of parliament. In crore balance sheet as at note march 31, 2015 march 31.
Tax liability as per the mat provisions are given in sec 115jb18. While writing down the mat credit entitlement following entry is to be passed. If this circumstance does not arise, and mat credit stays in the loans and advances column of the companys balance sheet till the end of the specified period after which it is simply written off. There were large number of companies who had book profits as per their profit and. Icai the institute of chartered accountants of india. Calculation of mat credit applicability of minimum alternate tax. Let us look at the definition and some of the most prominent traits of this tax. An issue plaguing successful resolution applicants under the insolvency and bankruptcy code, 2016 ibc is with respect to government claims pertaining to the period prior to approval of the resolution plan. Mat credit will be allowed carry forward facility for a period of seven assessment. How do i mapadjust income tax paid from my current. Mat is a way of making companies pay a minimum amount of tax. The following entry is to passed mat credit entitlement ac dr. Mat credit is utilised if income tax payable is more than mat.