Detailed Analysis of Guidance Note on MAT
Companies deals with various aspects of accounting and also presentation of MAT paid under section 115 J B of the Income Tax Act and the credit available in this regard.The Guidance Note generally do not deal with the calculation aspects of MAT.In many cases, assessees consider MAT paid as the Deferred Tax Asset. However, it is not appropriate to consider the MAT credit as a deferred tax asset for the purposes of AS 22.The MAT credit should be recognized as an asset only when and to the extent there is a convincing evidence that the company will pay normal income tax during the specified period for which the credit can be availed.A company should write down the carrying amount of the MAT credit asset to the extent there is no longer a convincing evidence to the effect that the company will pay normal income tax during the specified period for which the credit can be availed.Where a company recognizes MAT credit as an asset on the basis of the considerations specified above in the guidance note, the same should be presented under the head ‘Loans and Advances’ since, there being a convincing evidence of realization of the asset, it is of the nature of a pre-paid tax which would be adjusted against the normal income tax during the specified period. The asset may be reflected as to ‘MAT credit entitlement’ in the books of the company.In the year of set-off 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. The unavailed amount of MAT credit entitlement, if any, should continue to be presented under the head ‘Loans and Advances’ if it continues to meet the considerations stated in the earlier paragraph of the guidance note.MAT is the current tax. Accordingly, the tax expense arising on account of payment of MAT should be charged at the gross amount, in the normal way, to the profit and loss account in the year of payment of MAT.For your reference, we are also providing you the sample format of how the Book Profit for MAT calculation is calculated.The format is as follows:
